XN000022-1994-08-26 — Page 8

I

ON

FRIDAY, AUGUST 26, 1994

IN

LINE WITH THE MOVEMENTS OF THE U.S. DOLLAR, THE HONG KONG DOLLAR WEAKENED AGAINST THE JAPANESE YEN AND THE MAJOR EUROPEAN CURRENCIES DURING THE FIRST HALF OF 1994.

REFLECTING THESE DEVELOPMENTS, THE EFFECTIVE EXCHANGE RATE INDEX OF THE HONG KONG DOLLAR HAD BEEN ON A DOWNTREND SINCE THE BEGINNING OF THE YEAR, FALLING FROM A HIGH OF 127.8 RECORDED ON JANUARY 4 TO 123.1 AT THE END OF JUNE.

ALONG WITH THE RISES IN THE U.S. FEDERAL FUNDS RATE BY A TOTAL OF 1.25 PERCENTAGE POINTS BETWEEN FEBRUARY AND MAY (AND BY ANOTHER 0.5 OF A PERCENTAGE POINT IN MID-AUGUST) AND AN INCREASE IN THE U.S. DISCOUNT RATE BY 0.5 OF A PERCENTAGE POINT IN MID-MAY (AND BY ANOTHER 0.5 OF A PERCENTAGE POINT IN MID-AUGUST), LOCAL INTEREST RATES HAD BEEN ON AN UPTREND. DEPOSIT RATES GOVERNED BY THE HONG KONG ASSOCIATION OF BANKS AS WELL AS THE BEST LENDING RATE WERE ADJUSTED UPWARDS TWICE, IN MARCH AND MAY, AND AGAIN IN AUGUST.

OF

THE

BOTH HONG KONG DOLLAR DEPOSITS AND THE BROADER DEFINITIONS THE HONG KONG DOLLAR MONEY SUPPLY ACCELERATED IN GROWTH DURING SECOND QUARTER, AFTER RECORDING ONLY MODERATE INCREASES DURING THE FIRST QUARTER. IN LINE WITH THE STEADY GROWTH IN ECONOMIC ACTIVITY, TOTAL DOMESTIC LOANS ALSO SHOWED A SOLID RISE DURING THE SECOND QUARTER. WITHIN THIS TOTAL, LOANS TO FINANCE VISIBLE TRADE CONTINUED TO PICK UP. LOANS FOR MANUFACTURING AND FOR BUILDING, CONSTRUCTION AND PROPERTY DEVELOPMENT ALSO SHOWED FURTHER NOTABLE INCREASES.

IN THE LOCAL STOCK MARKET, THE HANG SENG INDEX, AFTER REACHING A NEW RECORD HIGH OF 12 201 IN EARLY JANUARY, CONSOLIDATED THEREAFTER AND TOUCHED A LOW OF 8369 IN EARLY MAY. THE MARKET REMAINED VOLATILE AND SHOWED CONSIDERABLE DAILY FLUCTUATIONS IN MAY AND JUNE. THE INDEX CLOSED THE FIRST HALF OF 1994 AT 8758, REPRESENTING A 3% FALL FROM THE END OF MARCH 1994 AND A 26% FALL FROM THE END OF 1993.

INFLATION

CONSUMER HALF OF

CONSUMER PRICE INFLATION, MEASURED IN TERMS OF THE PRICE INDEX (A), STAYED AT 8% OR BELOW THROUGHOUT THE FIRST THIS YEAR. ON A YEAR-ON-YEAR COMPARISON, THE CPI(A) ROSE BY 7.3% IN THE FIRST QUARTER AND BY 7.7% IN THE SECOND QUARTER. FOR THE FIRST HALF OF 1994 AS A WHOLE, THE INCREASE AVERAGED AT 7.5%. THIS WAS APPRECIABLY SLOWER THAN THE AVERAGE INCREASE OF 8.5% RECORDED IN BOTH THE FIRST AND THE SECOND HALVES OF 1993. THE CORRESPONDING INCREASES IN THE CPI(B) AND THE HANG SENG CPI IN THE FIRST HALF OF 1994 WERE 8.0% AND 9.7%. THE COMPOSITE CPI, AS AN AGGREGATE MEASURE OF CONSUMER PRICE INFLATION COVERING THESE THREE INDICES, HAD A CORRESPONDING INCREASE OF 8.2%.

INFLATION IN

IT ROSE

THE GDP DEFLATOR, AS A BROAD MEASURE OF OVERALL THE ECONOMY, HOWEVER SHOWED A FASTER INCREASE MORE RECENTLY. BY 8.9% IN THE FIRST QUARTER OF 1994 OVER A YEAR EARLIER.

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