TNAG-2466-FCO40-3590-Economic-situation-in-Hong-Kong-1992 — Page 45

FCO40 Hong Kong Department Records 聯邦事務部香港部檔案 All

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11

is dependent upon the money market and foreign exchange

activities of HSBC, and actions by HSBC's customers over

which neither HSBC nor the Exchange Fund have any control.

To the extent that HSBC's non-bank customers are switching

out of Hong Kong dollars, interest rates could in fact

fall. This is because HSBC, for prudent commercial reasons,

has to maintain their net foreign currency position by

a corresponding switch which would increase the supply

of Hong Kong dollars in the interbank market.

23.

By the same token, a switch into Hong Kong

dollars does not necessarily lead to a fall in Hong Kong

dollar interest rates. Again, to the extent that HSBC's

non-bank customers are switching into Hong Kong dollars,

the supply of Hong Kong dollar in the interbank market

may even decrease and cause interest rates to firm up.

24.

There has therefore often been a need to take

action to push interest rates in the required direction.

This takes different forms. Where possible, HSBC is

persuaded often against their commercial interests to

reduce or increase their lending in the money market

according to the needs of monetary policy. The Exchange

Fund also undertakes money market intervention through

HSBC. The effectiveness of such intervention is described

in Annex IV.

/25.

G.F. 316

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