XN000022-1987-02-25 — Page 24

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WEDNESDAY, FEBRUARY 25, 1987

*THIS AND THE FACT THAT WE BELIEVE IN AND PRACTISE FREE TRADE PUT US IN A UNIQUE POSITION,+ HE SAID.

MR JACOBS NOTED THAT THE EXCHANGE RATE HAD CONTINUED TO DEMONSTRATE REMARKABLE STABILITY OVER THE YEAR, ALTHOUGH THERE WAS SPASMODIC SPECULATION BASED ON UNFOUNDED RUMOURS OF A POSSIBLE CHANGE IN THE LINK.

ON OTHER MONETARY ISSUES, MR JACOBS SAID THE BETTER THAN EXPECTED PERFORMANCE OF THE ECONOMY LAST YEAR AND LOWER AND DECLINING INTEREST RATES OVER THE YEAR HAD LED TO A GENERAL IMPROVEMENT IN ASSET PRICES, MOST NOTABLY THOSE OF FINANCIAL ASSETS.

*THE STOCK MARKET, FOR EXAMPLE, HAS PERFORMED STRONGLY HELPED BY THE INFLOW OF FOREIGN INVESTMENT FUNDS INTO HONG kong TO TAKE ADVANTAGE OF THE POTENTIAL RETURNS AVAILABLE HERE,+ HE SAID.

HE SAID THAT THE INFLOW OF FUNDS INTO THE HONG KONG DOLLAR HAD RESULTED IN AN ACCELERATION IN THE GROWTH RATE OF THE MONEY SUPPLY DURING 1986.

+HK$M3, FOR EXAMPLE, CREW BY 12 PER CENT IN THE SECOND HALF OF THE YEAR, COMPARED WITH 4 PER CENT IN THE FIRST HALF ALTHOUGH THE FIGURE FOR THE SECOND HALF WAS INFLATED BY SUBSCRIPTIONS TO A NEW SHARE ISSUE IN DECEMBER.

+THE INFLOW HAS ALSO RESULTED IN A WIDENING OF THE GAP BETWEEN HONG KONG DOLLAR INTEREST RATES AND THOSE FOR THE U.S. DOLLAR, MAKING IT EXPENSIVE TO KEEP IDLE FUNDS IN HONG KONG DOLLARS AND INDUCING THE NECESSARY OFFSETTING OUTFLOW, HE SAID.

IN TIME, HE ADDED, THE ACCELERATION IN THE MONEY SUPPLY SHOULD WORK THROUGH THE ECONOMY RESULTING IN INCREASED IMPORTS OF GOODS AND SERVICES, THUS REDUCING OR ELIMINATING THE NET INFLOW OF FUNDS.

WHILE NOTING THAT A HIGHER GROWTH RATE OF THE MONEY SUPPLY WOULD BRING ABOUT UNWELCOME IMPLICATIONS LIKE INFLATION, MR JACOBS EXPRESSED DOUBTS ABOUT THE STRENGTH OF THIS PARTICULAR RELATIONSHIP IN HONG KONG'S OPEN ECONOMY.

+ALTHOUGH IN THE LAST QUARTER OF 1986, THERE HAS BEEN Á TENDENCY FOR THE COST OF LIVING OF THOSE IN THE HIGHER INCOME BRACKETS TO INCREASE FASTER, I DO NOT THINK THAT WE NEED AS YET BE UNDULY CONCERNED, HE SAID.

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