WEDNESDAY, DECEMBER 7,
EARLIER, THE FINANCIAL SECRETARY SAID THAT THE INTEREST RATE MECHANISM WAS THE ONLY MONETARY WEAPON CURRENTLY AVAILABLE TO PROVIDE AN EFFECTIVE SHORT-TERM INFLUENCE ON THE EXCHANGE VAL" OF THE HONG KONG DOLLAR AND THE RATE OF GROWTH OF THE MONEY SUPPLY AND OF DOMESTIC CREDIT.
+RELIANCE ON INTEREST RATES IS NOT TOTALLY EFFECTIVE, AND THERE MAY BE CIRCUMSTANCES IN WHICH THE USE OF OTHER DEVICES HAS TO EL CONSIDERED.
- BUT IN THE MEANTIME WE HAVE FELT IT IMPORTANT TO TRY TO STRENGTHEN THE INTEREST RATE MECHANISM, HE SAID.
MR BREMRIDGE POINTED OUT THAT THE MECHANISM HITHERTO AVAILABLE HAD BEEN RESTRICTED TO GOVERNMENT INVOLVEMENT ON A CONSULTATIVE BASIS IN THE SETTING BY THE HONG KONG ASSOCIATION OF BANKS OF MAXIMUM RATES OF INTEREST PAYABLE ON DEPOSITS WITH LICENSED BANKS.
+THIS MECHANISM HAS NOT HOWEVER BEEN ABLE TO EXERT A RIGID INFLUENCE OVER THE LEVEL OF MONEY MARKET RATES, WHICH ARE INFLUENCED AS MUCH BY THE SUPPLY AND DEMAND FOR FUNDS IN THE MONEY MARKET AS THEY ARE BY CHANGES IN THE HKAB DEPOSIT RATES.
+CONSEQUENTLY AN INCREASE IN BEST LENDING RATE INDUCED FOR MACRO-ECONOMIC REASONS BY AN INCREASE IN HKAB DEPOSIT RATES, MAY NOT BE FOLLOWED BY AN INCREASE IN MONEY MARKET RATES AND CONVERSELY MONEY MARKET RATES MAY DECLINE FASTER THAN IS, FOR MACRO-ECONOMIC REASONS, APPROPRIATE FOR BEST LENDING RATE.+
MR BREMRIDGE SAID THE LEVEL OF MONEY MARKET RATES IS IMPORTANT FOR THREE REASONS
* FIRSTLY THIS MARKET PROVIDES ALMOST THE ONLY OPPORTUNITY FOR LOCAL BANKS WITH A HONG KONG DOLLAR DEPOSIT BASE TO MAKE PROFITABLE USE LOCALLY OF THE EXCESS (UNLENT) ELEMENT OF THAT DEPOSIT BASE-
*
SECONDLY IT ALSO ENABLES THOSE BANKS AND DEPOSIT-TAK ING COMPANIES WHICH DO NOT HAVE A HONG KONG DOLLAR DEPOSIT BASE TO OBTAIN HONG KONG DOLLARS TO LEND TO CUSTOMERS- AND
* THIRDLY A GROWING NUMBER OF BANKS AND DEPOSIT-TAKING COMPANIES ARE LENDING TO INCREASINGLY AWARE AND FINANCIALLY SOPHISTICATED CUSTOMERS ON FACILITIES WITH THE INTEREST RATE SET AT A MARGIN OVER THE COST OF FUNDS TO THE LENDER.
MR BREMRIDGE ALSO REVEALED EARLIER THAT THE TOTAL OF EXCHANGE FUND DEBT CERTIFICATES ISSUED TO THE TREASURY ON NOVEMBER 30, 1981 AMOUNTED TO $16 697 MILLION.
HE SAID PRESENT INDICATIONS ARE THAT BY THE END OF FEBRUARY 1982 THE TREASURY WILL HAVE PLACED NEARLY $20 000 MILLION WITH THE EXCHANGE FUND, AND THE FISCAL RESERVES WILL CONTINUE TO ACCUMULATE IN THE NEXT FEW MONTHS.
THE GOVERNMENT'S FISCAL RESERVE ARE HELD WITH THE EXCHANGE FUND IN ORDER TO AVOID THESE RESERVES HAVING TO BEAR EXCHANGE RISKS AND, TO THE EXTENT THAT THESE RESERVES REPRESENT PART OF H EXCHANGE FUND'S HOLDINGS OF HONG KONG DOLLARS. THEY PLAY A PART IN THE EXERCISE OF LEVERAGE ON THE NEED FOR THE BANKING SYSTEM TO HOLD LIQUID ASSETS,