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WEDNESDAY, OCTOBER 12, 1983
EXCHANGE RATE DEPRECIATION EXPLAINED
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THE RECENT SHARP DEPRECIATION OF THE EXCHANGE RATE OF THE HONG KONG DOLLAR ARISES FROM EXTRANEOUS FACTORS AND RUNS COUNTER TO THE STATE OF THE ECONOMY, WHICH IS BOTH FUNDAMENTALLY SOUND AND IMPROVING RAPIDLY, THE SECRETARY FOR ECONOMIC SERVICES, THE HON PIERS JACOBS SAID TODAY.
MR JACOBS WAS REPLYING TO A QUESTION BY THE HON ANDREW So, WHO WANTED TO KNOW ABOUT MEASURES BEING TAKEN BY THE GOVERNMENT +TO CONTROL THE INCESSANT PRICE SPIRAL IN THE DOMESTIC ECONOMY+,
WHILE NOTING THAT HONG KONG HAD EXPERIENCED PRICE INFLATION, LIKE MANY OTHER PLACES, MR JACOBS POINTED OUT THAT THE AVERAGE RATE OF INFLATION IN TERMS OF THE CONSUMER PRICE INDEX HAD BEEN FALLING IN THE PAST YEARS — FROM OVER 16 PER CENT IN 1980 AND 8. TO JUST UNDER 11 PER CENT LAST YEAR.
HE ADDED, HOWEVER, THAT THE NINE PER CENT INFLATION FORECAST BY THE FINANCIAL SECRETARY FOR 1983 IN HIS BUDGET SPEECH +MIGHT PROVE A LITTLE OVER-OPTIMISTIC, HAVING REGARD TO THE RECENT SHARP DEPRECIATION OF THE HONG KONG DOLLAR, WHICH WILL PUT UP THE PRICE OF IMPORTS+.
THERE WAS LITTLE THE GOVERNMENT COULD OR SHOULD DO IN THE CASE OF EXTERNALLY CAUSED INFLATION, AND GOVERNMENT INTERVENTION WOULD NOT BE DESIRABLE IN THE CASE OF DOMESTICALLY GENERATED INFLATION, HE SAID.
<IF THE GOVERNMENT WERE TO INTERFERE DIRECTLY WITH THE COST-PRICE STRUCTURE THROUGH PRICE CONTROLS OR SUBSIDIES, THE COST WOULD HAVE TO BE BORNE SOMEWHERE, EITHER THROUGH THE REDUCED PROFITABILITY OF FIRMS LEADING TO REDUCED INVESTMENT IN NEW PLANT AND EQUIPMENT, REDUCED AVAILABILITY OF CERTAIN GOODS AND SERVICES, OR INCREASED TAXATION, OR A REDUCTION IN THE FLEXIBILITY AND EFFICIENCY OF THE ECONOMY GENERALLY, OR ALL TOGETHER, HE SAID.
MR JACOBS SAID SOME ACTION MIGHT BE APPROPRIATE WHERE INFLATION AROSE FROM EXCESSIVE CREATION OF CREDIT.
THE FINANCIAL SECRETARY INDICATED IN HIS RECENT MID-YEAR REVIEW SPEECH THAT DISCUSSIONS OF POSSIBLE NEW MEASURES TO IMPROVE THE CONTROL OF MONEY SUPPLY WERE CONTINUING, HE SAID.
MEANWHILE, HOWEVER, THE MONEY SUPPLY FIGURES DID NOT SUGGEST THAT THERE WAS MUCH DANGER OF FURTHER INFLATION FROM THIS SOURCE AT PRESENT.
REFERRING TO THE HONG KONG DOLLAR DEPRECIATION, HE SAID, +1 AM UNABLE TO ELABORATE ON FURTHER STEPS WHICH THE GOVERNMENT MIGHT TAKE BECAUSE THE MATTER IS STILL UNDER ACTIVE EXAMINATION, AND MUST BE CONFIDENTIAL.
MR JACOBS SAID ALSO THAT THE GOVERNMENT+ HAS DONE MUCH IN CUTTING COSTS AND IMPROVING PRODUCTIVITY IN THE PUBLIC SECTOR.+
/HE POINTED