TNAG-0735-FCO40-939-Policy-objective-for-the-developing-of-Hong-Kong-in-the-1980-1978 — Page 85

and then to 8 3/4% on 9th November. In the interval between

these two last moves the effective exchange rate index had

recovered to 94.3 (but only in response to President Carter's

measures to defend the U.S. dollar) and the September money supply figures, which had just been published, were a cause

for concern.

28.

Thus, in the past 6 months, the Best Lending Rate

has been increased by 84% and many bank customers will now be paying rates of 10-11% and even higher. Whether lending rates will have to be raised again in the near future remains to be

seen, but I expect to see over the next few months, a dampening

down of the demand for loans and thereby a slowing down of the growth rate of the money supply; and, in due time, I have no doubt that the exchange value of the Hong Kong dollar will

strengthen. At the same time, there will be a helpful reduction in the spending power of those with outstanding loans (14). I would hope, in particular, that the demand

for loans for property development and for speculative property purchases will be dampened down with a beneficial

effect on the rate at which prices are presently increasing.

Deposit rates have also been increased. To the

extent that the consequential narrowing of the differential

29.

(14) Although the practice in respect of many mortgage loans for

flats is for the repayment period to be extended when the interest rate is adjusted upwards.

16

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