XN000022-1983-11-17 — Page 4

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THURSDAY, NOVEMBER 17, 1983

→I MIGHT ADD THAT SOME MEASURE OF PROTECTION, IN ONE GUISE OR ANOTHER, FOR INDIGENOUS BANKS IS PRACTISED ACROSS MOST OF THE WORLD, EVEN IN THOSE ECONOMIES MOST FERVENTLY COMMITTED TO FREE ENTERPRISE,+ MR LATTER SAID.

ON THE MONETARY SYSTEM UNDER THE NEW REGIME, HE SAID THAT THE GOVERNMENT'S VIGILANCE EXTENDS TO THE BEHAVIOUR OF INTEREST RATES.

WHILE THE FLEXIBILITY DEMANDED OF INTEREST RATES MIGHT WELL BE CAPABLE OF ACCOMMODATION WITHIN THE FRAMEWORK OF THE EXISTING HKAB RULES, THERE COULD BE CIRCUMSTANCES IN WHICH AN INDIVIDUAL BANK FACED PRESSURES NOT SHARED BY OTHERS, AND THEREFORE WANTED TO ADJUST RATES UNILATERALLY AND QUICKLY, HE SAID.

HKAB RULES, HE POINTED OUT, ALLOW FOR UNILATERAL DEPARTURE FROM AGREED DEPOSIT RATES DOWNWARDS, BUT NOT UPWARDS.

+BUT DON'T LET US GET CARRIED AWAY. AS YET NO COMPELLING CASE FOR ABANDONING THE INTEREST RATE RULES HAS BECOME APPARENT.

+AS I HAVE SAID, WE SHALL BE WATCHING. AS EVER WE STAND READY TO CONSULT QUICKLY IF CIRCUMSTANCES SO DEMAND, BUT WE ARE EQUALLY RELUCTANT TO MAKE RUSHED RESPONSES TO WHAT ARE FOR THE TIME BEING HYPOTHETICAL SITUATIONS,+ MR LATTER STATED.

HE NOTED THAT THE FINANCIAL SECTOR HAS BEEN FACED WITH MANY UNAVOIDABLE CHANGES OF LATE THE TRANSITION TO THE THREE-TIER STRUCTURE IS JUST COMPLETED; FURTHER LEGISLATIVE AMENDMENTS FOR PRUDENTIAL REASONS ARE ALREADY IN THE PIPELINE; AND THE EXCHANGE RATE REGIME HAS JUST BEEN INTRODUCED.

+WHILE COPING WITH ALL THIS, THE FINANCIAL SECTOR IS STILL BUSY NURSING A FAIR NUMBER OF FRAGILE CUSTOMERS. THIS MAY NOT BE THE MOMENT FOR FURTHER STRUCTURAL CHANGES, UNLESS ABSOLUTELY NECESSARY, MR LATTER SAID.

REFERRING TO CALLS TO AMEND THE LIQUIDITY REQUIREMENT ON BANKS AND DEPOSIT-TAKING COMPANIES, HE NOTED THAT THIS HAD BEEN AN ISSUE SINCE LONG BEFORE THE RECENTLY INTRODUCED MEASURES ON THE EXCHANGE RATE.

HE SAID THAT HIS OWN PERSONAL VIEW HAD ALWAYS BEEN THAT,

*

FIRST, THE LIQUIDITY REQUIREMENT WAS DEVISED AS A PRUDENTIAL REQUIREMENT AND SHOULD CONTINUE TO BE REGARDED IN THAT CONTEXT AND NOT IN THE CONTEXT OF MACRO MONETARY POLICY; AND

* SECOND, THAT EVEN IF WE HAD SOMEHOW ALTERED OR MANIPULATED

THE LIQUIDITY REQUIREMENT FOR INTENDED MONETARY CONTROL PURPOSES. WE WOULD NOT HAVE FOUND IT CAPABLE OF PRODUCING A SUSTAINED EFFECT.+

/HE FELT