TNAG-2475-FCO40-3605-Hong-Kong-exchange-fund-report-and-accounts-for-1991-1992 — Page 20

CONFIDENTIAL

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18.

The market exchange rate of the Hong Kong dollar

strengthened as a result of the interest rate premium and briefly

rose to a high of 7.714 on 22 June. With a view to forestalling a

further strengthening of the exchange rate and taking into account

indications of an easing in the inflation rate, the liquidity withdrawn on 24 May was injected back to the interbank market on

28 June, restoring the balance to $480 million. HKAB

correspondingly announced a one percentage point cut in deposit

rates. In consequence, the exchange rate of the Hong Kong dollar

returned to a level closer to 7.80.

19.

and

Around the middle of July, unfounded rumours in the

banking sector following the closure of Bank of Credit

Commerce Hong Kong Limited led to temporary increase in the

demand for interbank funds. To prevent the probable unsettling

effects on interbank interest rates and hence on the exchange

rate, the Exchange Fund injected $60 million into the banking system on 17 July, increasing the balance to $540 million.

20.

The balance was further increased to $600 million on 30

July, on signs of a widening of the interest rate premium and a

firming up of the exchange rate.

21.

From the middle of September, Hong Kong dollar

interbank interest rates drifted below US rates. To prevent a

sharp fall in interbank rates following the announcement of a cut

in HKAB deposit rates, the balance was reduced from $600 million

to $500 million on 1 November.

22.

During 1991, the Exchange Fund bought a total of

US$1,061 million in foreign exchange market intervention, at an

average exchange rate of 7.757.

CONFIDENTIAL