BIS Review 38/2003  1  At its monetary policy meeting in August, the Federal Open Market Committee decided to keep its target for the federal funds rate unchanged at 1 per cent. The Committee perceived that the upside and downside risks to the attainment of sustainable growth for the next few quarters were roughly equal. The Committee judged that, on balance, the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future. In these circumstances, the Committee believed that policy accommodation can be maintained for a considerable period. Asia is showing signs of recovery. China is leading the field with economic growth approaching 10 per cent and Thailand is showing strong growth. But the picture is not all positive. South Korea has experienced slower growth this year. South Korea is one of the countries that is particularly affected by the competition from China. In Japan, where growth has been low for a long period, there are indications that growth is picking up, although it is still too early to say whether it is sustainable. The key rate in the euro area has been reduced to 2 per cent. Forward rates imply that interest rates are expected to remain at 2 per cent to the end of 2003, before rising slightly next year. GDP growth in major European countries is low or negative. In the Netherlands, GDP has dropped for three consecutive quarters, and Germany has recorded a decline over the past two quarters.
From this point of view, I share the doubts expressed in the latest BIS Annual Report about “whether central banks stripped of supervisory responsibilities will be able to obtain the information they require, when they need it, to use their emergency liquidity support powers wisely and effectively in a market-driven world.” One of the arguments of those who would like to see the institutions of regulator and lender of last resort clearly separate is that too close a relationship may give rise to serious conflicts of interest which could prove costly to the public purse in terms of over-generous support operations. However, the arrangements which I have described here ensure that there is no use of public funds, except those which are fully collateralised, at least until referral to the Financial Secretary has been triggered. To conclude, I should like to repeat the simple statement that I made in 1994: that there is an official lender of last resort in Hong Kong, and that this is the HKMA. My speech this evening, and the policy statement soon to be circulated, will, I hope, help put a speedy end to the doubts and uncertainties about this point and about whether our role as lender of last resort is consistent with our role as operator of a Currency Board system. The detailed policy statement has also set out, more clearly and precisely than ever before, the circumstances in which lender of last resort support will be extended, the preconditions for obtaining support, and the mechanics for arranging it.