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this. They do show a correlation between growth in demand and this type of investment, but this may well be a response to a more general output constraint rather than a clear case of factor substitution.
The visible trade balance for QIII was in surplus by HK$6.3 bn, which was sufficient to bring the visible trade account into almost exact balance for the year to September.
1.
Financial
8. The effective exchange rates quoted in the report are based on the revised series in operation since September. In the quarter there was an overall depreciation of % to 105.7 as a result of the decline in the dollar and hence the HK$ since late August. From July to early August there was an effective appreciation of slightly greater magnitude.
9.
Once again, rumours of revaluation of the HK$ in September led to speculative pressure on the currency: it traded above the link rate and there was a downward movement in interest rate. This rapidly dissappeared with the reaffirmation of the link policy, possibly demonstrating further that there is little economic pressure for a revaluation.
10. Interest rates did however drift apart during the quarter: the negative margin between the 3-month interbank rate in Hong Kong and its US equivalent rose to about 13/4 percentage points from about half a percentage point. This was due to an upward drift in US rates, presumably in responce to the dollar's decline.
11. In domestic money markets the bouyancy of demand from high consumer spending and low real interest rates continued. Total outstanding loans increased by 15.5% in QIII. The growth to September was 39%. Money supply, by whatever definition, also grew rapidly.
Prices
12. There are clearly good reasons why the economic situation as described might lead to inflationary pressures: the declining currency, the tight labour markets, the booming consumer spending would all seem to point in ths direction. These effects have however fed through rather slowly. Overall inflation, was, at the end of September, depending on the CPI used, between 5.9 and 6.9%. But the increases in the rate have not been large, and inflation is not higher relative to recent history. On the other hand it should be observed that this rate is higher than, for example, the OECD countries where the average rate of inflation in September was 3.9%. This has a negative impact on competitiveness.
13. Several factors have been widely identified as dampening inflationary pressures, including:
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