XN000022-1985-09-23 — Page 5

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MONDAY, SEPTEMBER 23, 1985

J

IN JULY THIS YEAR, HE SAID, +AN EUPHORIC FEELING ABOUT THE LOCAL STOCK AND PROPERTY MARKETS, PLUS A SHARP WEAKENING OF THE U.S. DOLLAR AND SOME UNDOUBTED SPECULATION+ HAD MOVED THE EXCHANGE RATE MOMENTARILY TO AROUND HK$7.72 PER U.S. DOLLAR.

THIS REPRESENTED ONLY A ONE PER CENT VARIATION FROM THE LINKED RATE WHICH, WHEN COMPARED WITH THE FALL IN THE U.S. DOLLAR AGAINST, FOR EXAMPLE, THE DEUTSCHEMARK OF AROUND 17 PER CENT IN THE FIVE MONTHS FROM MARCH TO JULY THIS YEAR, WAS VERY SMALL.

+YET SOME TOOK THE OPPORTUNITY TO SPREAD UNFOUNDED RUMOURS ABOUT THE LINK. IN THE EVENT THE HONG KONG DOLLAR INTEREST RATES WERE LOWERED SUBSTANTIALLY BELOW THOSE FOR THE U.S. DOLLAR AND IN DUE COURSE THE EXCHANGE RATE OF THE HONG KONG DOLLAR AGAINST THE U.S. DOLLAR MOVED BACK CLOSE TO 7.80.

+I REPEAT YET AGAIN THAT THE LINK WILL BE MAINTAINED AT 7.80, + SIR JOHN SAID.

REFERRING TO CONCERN EXPRESSED BY SOME ABOUT THE INFLATIONARY CONSEQUENCES FOR HONG KONG OF A POSSIBLE CONTINUED FALL IN THE U.S. DOLLAR, SIR JOHN SAID SUCH CONCERN HAD TO BE PUT IN CONTEXT.

THE FALL IN THE U.S. DOLLAR FROM ITS PEAK IN FEBRUARY TO ITS TROUGH IN AUGUST BY 21 PER CENT AGAINST THE DEUTSCHEMARK AND 33 PER CENT AGAINST STERLING, MEANT A DEPRECIATION OF THE HONG KONG DOLLAR ON A TRADE-WEIGHTED BASIS FROM A HIGH OF 79.1 ON MARCH 6, TO A LOW OF 74 ON AUGUST 22. THIS REFLECTED A FALL OF ABOUT SIX PER CENT IN FIVE AND A HALF MONTHS WHICH NOT ONLY SHOULD NOT CAUSE CONCERN BUT WAS CLEARLY BENEFICIAL TO EXPORTERS, SIR JOHN SAID.

+WE SHOULD ALSO BEAR IN MIND THAT THIS WAS PRECEDED BY A PERIOD DURING WHICH THE U.S. DOLLAR HAD STRENGTHENED SHARPLY. IT HAS DONE SO AGAIN RECENTLY. DOGMATISM IN THIS AREA IS VERY DANGEROUS, + SIR JOHN SAID.

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TO RESTRAIN THE INFLOW OF FUNDS INTO THE HONG KONG DOLLAR AND TO VALIDATE THE LINK TO THE U.S. DOLLAR, THE LOCAL INTEREST RATES HAD BEEN RELATIVELY LOW THIS YEAR.

THIS WAS HELPFUL TO HOME BUYERS AND TO THE ECONOMY GENERALLY. +BUT WE SHOULD BE AWARE OF THE STRUCTURAL IMBALANCE THAT COULD RESULT IF SUCH LOW RATE ENCOURAGED PROPERTY SPECULATION TO AN EXTENT UNJUSTIFIED BY THE BASIC ECONOMIC FUNDAMENTALS.

+ I HOPE THE PAINFUL LESSONS OF THE RECENT PAST ARE STILL FRESH IN INVESTORS' MINDS.

+WE SHOULD NOTE THAT WITH THE LINK, HONG KONG DOLLAR INTEREST RATES SHOULD NOT IN THE LONG TERM DEVIATE SUBSTANTIALLY FROM U.S. DOLLAR INTEREST RATES,+ HE SAID.

/TURNING TO