CONFIDENTIAL
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decline unless there is a very large increase in turnover in the
stock index market. However, interest at prime lending rate is being paid on the outstanding principal and it seems unlikely that
interest will not be adequately covered from sources other than
the special levy on the futures contract.
15.
The repayment of $200 million to the Brokers and Shareholders under the terms of the 1989 restructuring agreement
was completed on 28 August 1990. Thereafter repayment of
principal to the Fund was resumed. The outstanding loan extended
by the Fund stood at $327 million at the end of December 1991.
MONETARY POLICY OPERATIONS
16.
The primary monetary policy objective is to maintain a
stable exchange rate between the Hong Kong dollar and the US
dollar around the linked rate of 7.80. The pursuit of ancillary objectives, such as dampening inflation, is possible only within the confines of this overriding objective.
17.
Against rising inflationary pressures and expectations
in the early part of 1991, local interest rates were increased in
May as part of an anti-inflation package. The level of interbank
liquidity (as represented by the balance The Hongkong and Shanghai
Banking Corporation Limited (HSBC) maintains with the Exchange Fund under the Accounting Arrangements) was reduced from $480 million to $380 million on 24 May. This was followed by a one
percentage point increase in deposit rates set by the Hong Kong
Association of Banks (HKAB). In response, the three-month Hong
Kong dollar interbank interest rate firmed to around 1.5 to 2
percenage points above the corresponding US dollar interest rate.
CONFIDENTIAL
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