CONFIDENTIAL
-
10 -
18.
The market exchange rate of the Hong Kong dollar
strengthened as a result of the interest rate premium and briefly
rose to a high of 7.714 on 22 June. With a view to forestalling a
further strengthening of the exchange rate and taking into account
indications of an easing in the inflation rate, the liquidity withdrawn on 24 May was injected back to the interbank market on
28 June, restoring the balance to $480 million. HKAB
correspondingly announced a one percentage point cut in deposit
rates. In consequence, the exchange rate of the Hong Kong dollar
returned to a level closer to 7.80.
19.
and
Around the middle of July, unfounded rumours in the
banking sector following the closure of Bank of Credit
Commerce Hong Kong Limited led to temporary increase in the
demand for interbank funds. To prevent the probable unsettling
effects on interbank interest rates and hence on the exchange
rate, the Exchange Fund injected $60 million into the banking system on 17 July, increasing the balance to $540 million.
20.
The balance was further increased to $600 million on 30
July, on signs of a widening of the interest rate premium and a
firming up of the exchange rate.
21.
From the middle of September, Hong Kong dollar
interbank interest rates drifted below US rates. To prevent a
sharp fall in interbank rates following the announcement of a cut
in HKAB deposit rates, the balance was reduced from $600 million
to $500 million on 1 November.
22.
During 1991, the Exchange Fund bought a total of
US$1,061 million in foreign exchange market intervention, at an
average exchange rate of 7.757.
CONFIDENTIAL