Good
5.
Some
residential
But others I spoke to were
rather less sanguine. (including one banker) argued that the 70% limit on property advances was being widely ignored by some lenders. Strong underlying upward pressures on property demand were identified, including break up of the extended Chinese family leading to extra household creation. Most of those concerned
about the property position linked their doubts to the overall inflation position, and the implications this had for HK's future competitiveness.
6.
A striking feature here was the contrast between price
movements in the manufacturing and services sectors. Manufacturing prices seemed to be rising at around 2% per annum, with service price inflation far higher. The more sanguine
identified this as evidence that in tradeable goods HK's competitive position was being maintained. The less sanguine
argued that, with HK becoming increasingly a services-based economy, it could not afford to allow service sector inflation
continue; there were plenty of Pacific rim competitors eager to
take the business. Others expressed worries
distributional effects of regular 10% inflation; it was bringing about large shifts of income eg away from the old and towards profits.
7.
to
about the
one
I explored with several people the extent to which the
exchange rate link to the US dollar, and the recent low interest
rates necessary to defend it, was to "blame" for inflationary
pressures. There seems no doubt that the loose monetary stance
has been unhelpful in this respect, although most thought it had
played only a small part in the inflationary process estimate suggested it accounted for 20%. Were there to be a long and sustained period of upward pressure on the exchange rate, there might be a case for considering whether the link was still
worth it. But it was very clear to me that the establishment and
maintenance of the link during the 1980s has been fundamental to
economic confidence in HK. To break the link would be a profound blow, and certainly not a step to be taken lightly. I saw no reason to differ from the near-universal judgement that, short some major crisis, the link should be retained.
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