Furthermore, relative prices change more than they did before, but monetary policy cannot affect them except in the short term. Sometimes it can be difficult to distinguish between such relative price changes and a general rise in the price 3  level, which depends in the long run on monetary policy. In addition to this, it can often be difficult to determine at any given time which changes are temporary and could possibly be mitigated through economic policy and which ones are more permanent and nothing much can be done about, at least through monetary policy. These are exactly the conditions we are experiencing at present. There are clear indications that the equilibrium real exchange rate has risen with improved terms of trade, increased national saving, and a vastly improved external position. In addition, there are indications that equilibrium interest rates have fallen since before the crisis, and they have probably fallen still further as monetary policy has grown more credible and inflation expectations have been anchored more firmly at the target. In both instances, the question of how much remains unanswered. As far as the exchange rate is concerned, conventional measuring methods do not indicate that the real exchange rate is clearly above its equilibrium level. This is supported by the Bank’s analysis, to be published next week in Financial Stability, which shows that 85% of inflows into the foreign exchange market in 2016 were attributable to the current account surplus and transactions between residents.
There are also a significant number of other Taiwanese banks which have expressed the intention to establish representative offices here. We are processing these applications in an orderly fashion on a “first-come first-served” basis. It has long been our policy not to allow in too many banks from the same region or country too quickly. As in the case of the Japanese regional banks and the Korean banks we therefore operate a queuing system. I know that this can sometimes be frustrating to those who are at the back of the queue. But I would like to made it clear that these is no reluctance on our part to admit banks from Taiwan, as the existing presence here clearly demonstrates. I am sure that Dr. Jeffrey Koo will also testify to this. 6. Hong Kong is currently going through tougher times as a financial centre. Some foreign banks have cut back their lending here and a few banks have actually left. This has reflected problems back home rather than discontent with Hong Kong. However, it is true that Hong Kong must reduce the cost of doing business in order to remain competitive, and that is why the current fall in property prices and rents, while painful, is also necessary. I am confident that Hong Kong will emerge from the current crisis with a better-balanced economy and with even stronger fundamentals. Above all, it can continue to rely on its main strategic advantage as a financial centre - namely, its proximity to the Mainland of China.