FINANCIAL AND MONETARY AFFAIRS
During 1992, the market exchange rate of the Hong Kong dollar against the US dollar moved within a narrow range of HK$7.72 and HK$7.78 to US$1. During the second quarter, the exchange rate of the Hong Kong dollar strengthened to around HK$7.73 in April from 7.78 at end-91. Such a move could have been triggered by the enthusiasm of foreign investors in the Hong Kong stock market. The exchange rate then moved around the range between HK$7.73 to 7.76 during May to August 1992. At the end of the year, it closed at HK$7.74.
Under the linked exchange rate system, the overall exchange value of the Hong Kong dollar, as measured by the effective exchange rate index, is influenced predominantly by the movements of the US dollar against other major currencies. Reversing the trend in the latter part of 1991, the US dollar rebounded strongly during the first quarter of 1992. The effective exchange rate index of the Hong Kong dollar rose from 109.2 at the end of 1991 to 113.2 on April 21. However, in the face of a slow recovery pace of the US economy and the substantial interest rate differential in favour of the European currencies, the US dollar weakened against other major currencies during the second quarter and the first part of the third quarter. In mid-September, the US dollar rebounded briefly amid the chaos in the foreign exchange market in Europe. Reflecting the movement of the US dollar, the effective exchange rate index fell from a high of 113.2 to 108.3 in early September before picking up to close the year at 114.2.
During the first four months of 1992, the three-month Hong Kong Interbank Offered Rate (HIBOR) generally stayed above the corresponding Euro-Dollar deposit rate. The HIBOR eased markedly in late April subsequent to two liquidity injections by the Exchange Fund on April 28 and 29. Overnight HIBOR dropped from 5.750 per cent on April 28 to 4.125 per cent on April 29 and the three-month HIBOR dropped from 4.625 per cent to 4.250 per cent. The interest rate gap between the three-month HIBOR and the corre- sponding Euro-Dollar was completely closed in mid-May. Since then, the former has fallen below the latter. In August, influenced by several large share flotation exercises, the three- month HIBOR firmed up and rose above the Euro-Dollar rate. But it fell below the Euro- Dollar rate again following a liquidity injection of HK$512 million into the system by the Exchange Fund on August 6. Since mid-September, the three-month HIBOR moved closely with the corresponding Euro-Dollar rates. Their average differential for 1992 was 0.13 of a percentage point, compared with the corresponding 0.29 percentage point recorded in 1991.
During the year, in line with the movements in local money market interest rates, deposit rates administered by the Hong Kong Association of Banks were adjusted downward across-the-board on three occasions, by half of a percentage point on May 4, by one percentage point on May 25 and by another half of a percentage point on July 6.
Hong Kong dollar deposits grew by 13.2 per cent during 1992, lower than the growth rate of 16.2 per cent in 1991 but was still broadly consistent with the growth in gross domestic product in money terms. On the other hand, the annual increase of foreign currency deposits slowed down to 6.3 per cent in 1992 from 8.3 per cent in 1991. The growth of offshore deposits booked in Hong Kong probably slackened during the year, largely reflecting the sharp deceleration in monetary expansion in the USA and Japan as a result of their slowing economies. Taken together, total customer deposits (in all currencies) increased by 9.3 per cent in 1992, compared with 11.6 per cent in 1991. The relative share of Hong Kong dollar deposits to total deposits rose to 45.5 per cent at end-1992, from 44.0 per cent at end-1991.
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