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During the first quarter of 1996, the market exchange rate of the Hong Kong dollar against the US dollar remained stable and continued to stay on the strong side of the linked rate of HK$7.8 to US$1.
The market exchange rate moved within a narrow range of 7.72-7.74 throughout the first quarter, before closing the quarter at 7.734.
In line with the continued strengthening of the US dollar against most of the other currencies, the trade-weighted Effective Exchange Rate Index of the Hong Kong dollar appreciated by 1% during the first quarter, to 123.7 at the end of March.
Hong Kong dollar interest rates softened further in February, following the cut in the US discount rate and the US Federal funds rate both by 25 basis points.
The savings deposit rate and the best lending rate of the banks were lowered by the same magnitude, to 3.75% and 8.5% respectively. Competition among banks for mortgage business led to some further cuts in the mortgage rate.
Hong Kong dollar deposits showed a faster increase during the first quarter of 1996, while the growth in Hong Kong dollar loans also accelerated. The loan-to- deposit ratio registered a slight rebound during the first quarter.
Of the loans for use in Hong Kong, the increases for the major components were across-the-board. Loans to stockbrokers registered the fastest increase during the first quarter, followed by those for building, construction and property development, for residential mortgages, and for financing trade.
In line with regular practice, GDP and price forecasts for 1996 have been reviewed by individual component. The updated forecasts are summarised in the table annexed.
In the external sector, re-exports are forecast to grow by 12% in real terms in 1996, similar to the March forecast. Domestic exports, on the other hand, are forecast at zero growth in real terms in 1996, down from the earlier forecast of a 0.5% increase.
The negative exchange rate effect brought about by the stronger US dollar is expected to dissipate gradually. A better economic performance in the United States and the United Kingdom is envisaged for the latter part of the year, following the moderation over the course of last year.
In Germany, although there is little sign of economic recovery so far, the recent cuts in interest rate and the proposed tax reforms are expected to give some support to demand in due course. In Japan, the economy is picking up steadily.