XN000022-1991-05-29 — Page 11

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WEDNESDAY, MAY 29, 1991

SIR

WELCOMED

BY THE HONG KONG HIS INSTRUCTION

LIQUIDITY FROM

THE MOVE PIERS

HE SAID ASSOCIATION OF BANKS LAST WEEK WHICH COINCIDED WITH GIVEN TO THE OFFICE OF THE EXCHANGE FUND TO WITHDRAW THE INTERBANK MARKET.

CHANGE

OF

PUBLIC

"HIGHER INTEREST RATES SHOULD HAVE THE PSYCHOLOGICAL EFFECT

HELP AND

TO EXPECTATION INFLATIONARY DAMPENING PERCEPTION ABOUT CURRENT INFLATION IN HONG KONG.

"THEY SHOULD ALSO HAVE THE EFFECT OF SLOWING DOWN THE RATE CREDIT EXPANSION, HE ADDED.

17

OF

NOT

THAN THE

SIR PIERS SAID DOUBTS HAD BEEN EXPRESSED AS TO WHETHER OR KEEPING INTEREST RATES FOR THE HONG KONG DOLLAR AT LEVELS HIGHER

A

FROM DEPARTURE REPRESENTED THOSE FOR THE U.S. DOLLAR GOVERNMENT'S MONETARY POLICY OF MAINTAINING EXCHANGE WITHIN THE FRAMEWORK OF THE LINKED EXCHANGE RATE SYSTEM.

RATE STABILITY

"LET ME SAY IN NO UNCERTAIN TERMS THAT

THERE 19 NO SUCH

DEPARTURE.

FROM 7.80

"THE EXCHANGE RATE HAS STRENGTHENED SOMEWHAT AWAY UNDER THE INFLUENCE OF HIGHER HONG KONG DOLLAR INTEREST RATES, BUT FOR TEMPORARY AS LONG AS THE DEVIATION FROM 7.80 CAN BE EXPLAINED BY THE INTEREST RATE GAP, THIS IS ACCEPTABLE,

HE SAID.

A

AS A

SIR PIERS SAID THERE WAS THE SAME DEVIATION IN JUNE 1989 AS RESULT OF EVENTS IN CHINA AND IN THE SECOND QUARTER OF 1990 RESULT OF SIMILAR DELIBERATE EFFORT TO SLOW DOWN CREDIT EXPANSION HONG KONG.

AN

"AS LONG AS THE EXCHANGE RATE IS BROADLY STABLE, AVERSE TO USING INTEREST RATES JUDICIOUSLY TO CREATE CONDUCIVE TO FIGHTING INFLATION," HE NOTED.

ALTHOUGH

IN

I AM NOT ENVIRONMENT

THE SPOT

HE SAID IT WAS INTERESTING TO NOTE THAT EXCHANGE RATE HAD STRENGTHENED TO 7.73, THE FORWARD RATE, SAY, FOR SIX MONTHS HAD REMAINED IN THE PAST FEW DAYS AT AROUND 7.80.

'SHOULD THE EXCHANGE RATE DEVIATE FROM 7.80 UNDER THE INFLUENCE EXCHANGE OF SPECULATION, AS WAS THE CASE AT THE END OF 1987 WHEN THE RATE STRENGTHENED DESPITE VERY LOW INTEREST RATES, THE OFFICE OF

M HE ADDED. EXCHANGE FUND WILL ACT DECISIVELY TO DEAL WITH IT,

THE

CUTBACK IN THE EARLIER SIR PIERS SAID AS A RESULT OF THE

REVENUE SOME $700 INCREASE IN

TOBACCO DUTY, WHICH WOULD COST THE

AND CHARGES, THE MILLION, AND THE MORATORIUM ON DEPARTMENTAL FEES SURPLUS BUDGETTED FOR THIS FINANCIAL YEAR WOULD BE ALMOST ABSORBED.

OF THE

OF GOVERNMENT

"BUT I INTEND TO RESTORE THE NET DEFLATIONARY IMPACT

THROUGH THE PROGRAMME EARLIER

SURPLUS BUDGETTED BORROWING, WHICH IS NOW UNDER ACTIVE PREPARATION,

HE SAID.

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