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WEDNESDAY, JANUARY 7, 1981
INTEREST RATES MUST FIND THE IR OWN LEVEL
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THE GOVERNMENT WILL NOT CONSIDER TAKING STEPS TO EASE THE IMPACT OF THE PRESENT HIGH INTEREST RATES ON INDUSTRY, THE FINANCIAL SECRETARY, THE HON SIR PHILIP HADDON-CAVE SAID IN THE LEGISLATIVE COUNCIL TODAY.
IN REPLY TO A QUESTION BY THE HON FRANCIS TIEN, SIR PHILIP SAID IT WAS +NO PART OF THE GOVERNMENT'S APPROACH TO THE MANAGEMENT OF OUR ECONOMY FOR COST INPUTS TO BE SUBSIDISED+, EXCEPT INDIRECTLY WHERE SOCIAL CONSIDERATIONS APPLY AS THEY DO, FOR EXAMPLE, IN THE CASE OF PUBLIC HOUSING AND EDUCATION.
+BUT, EVEN IF WE HAD A CONVENIENT MECHANISM TO INFLUENCE THE COST OF BORROWING, THE BALANCE OF ADVANTAGE LIES IN ALLOWING INTEREST RATES TO FIND THEIR OWN LEVEL, WHICH THEY DO AS HONG KONG HAS AN OPEN ECONOMY, A FREELY FLOATING EXCHANGE RATE AND NO EXCHANGE CONTROLS,+ SIR PHILIP SAID.
HE POINTED OUT THAT AT PRESENT INTEREST RATES WERE NOT RELATIVELY HIGH WHEN COMPARED WITH INTEREST RATES ELSEWHERE, ALTHOUGH THEY WERE BY HISTORICAL STANDARDS.
+FOR OUR INTEREST RATES TO BE KEPT SUBSTANTIALLY LOWER THAN THE GENERAL LEVEL IN, SAY, NORTH AMERICA WOULD TEND TO CAUSE FUNDS TO BE MOVED OUT OF HONG KONG, THUS AFFECTING THE EXCHANGE RATE.
+THIS WOULD PARTICULARLY BE THE CASE IF THE LOWER INTEREST RATES IN HONG KONG MEANT THAT THE RETURN TO LENDERS IN HONG KONG WAS NEGATIVE IN REAL TERMS TO ANY SIGNIFICANT EXTENT.
+ IN THE EVENT, THE RESULT WOULD PROBABLY BE THAT INDUSTRY WOULD FIND IT INCREASINGLY DIFFICULT TO BORROW AT ALL, SIR PHILIP SAID.
BESIDES, HE DOUBTED WHETHER THERE WOULD BE ANY WAY OF ENSURING THAT LOANS EXTENDED ON SPECIAL TERMS WERE IN FACT USED TO FINANCE MANUFACTURING AND NOT OTHER ACTIVITIES.
HE CITED THE PREFERENTIAL INTEREST RATES ARRANGEMENT INTRODUCED IN 1979 BY CERTAIN BANKS. IT DEMONSTRATED THAT IT WAS VERY DIFFICULT TO IDENTIFY PRECISELY LOANS THAT GENUINELY QUALIFIED FOR PREFERENTIAL TREATMENT AND TO ENSURE THAT SUCH LOANS WERE USED AS INTENDED.
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