Introduction
CHAPTER 3: THE FINANCIAL SECTOR
3.1
The exchange value of the Hong Kong dollar weakened
during the first half of 1983. The extent of its depreciation
was generally considered to be excessive in terms of the
underlying economic fundamentals. Influenced
fluctuations in the exchange rates between
by wide
the major
currencies
in the world, a very strong US dollar and
speculative activities fostered by political uncertainty and
lack of confidence, the foreign exchange market was very
volatile in the second quarter. To lend support to the
exchange rate, local interest rates were increased twice, but
given the strength of other factors, these increases in
interest rates probably had only a limited stabilizing
effect. The Hong Kong dollar recovered in June as sentiment
in the market changed, but at the end of the first half of
1983 it was still arguably undervalued in terms of the prevailing economic situation.
3.2
Developments in the other areas of the monetary
sector were, however, more favourable. Notwithstanding the
difficulties in interpreting the money supply figures, it
seems that the growth rate of the money supply was slowing
down. So, in contrast to the weak exchange rate, this was
probably helpful in exerting some dampening effect on the rate
of inflation. Loans and advances also grew moderately, although the higher interest
higher interest rates which brought about the
slower growth might have, at the same time, caused some problems for particular sectors of the economy. Insofar as
the monetary sector is concerned, the first half of 1983
marked a period of consolidation.
The two-year
transitional
20
/period