And the recovery of the euro – including its recovery against sterling – will help to ease the severe imbalance within our own economy between the domestically-orientated sectors which have typically been doing relatively well and those businesses and sectors that are most exposed to competition from the Eurozone and which have been having a rough time. That imbalance is, I know, a real concern up here north of the border, and it has more generally for some time been one of the most difficult issues confronting us in conducting monetary policy. But there are, of course, also major domestic uncertainties. What – as I have often explained before – we are seeking to do through monetary policy – in order to achieve the Government’s inflation target – is to keep overall nominal demand growth more or less continuously in line with the supply-side capacity of the economy to meet that demand. That is a necessary condition for maintaining our steady economic progress. But we cannot directly observe supply-side capacity in either product or labour markets, nor therefore anticipate just how it will develop, with any great precision, nor do we know precisely what is currently happening or is likely to happen to the rate of growth of aggregate demand in the economy anyway. Our forecasts and policy judgements are based upon very careful scrutiny of all the latest data available to us, informed by the best technical analysis we can muster.
Joseph Yam: Banking sector risks and challenges Luncheon talk by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Institute of Bankers, Hong Kong, 16 June 2004. *  *  *  The turnaround Thank you for inviting me to talk to you today. It is a pleasure to be here and I am delighted to see such an enthusiastic attendance. I was recently looking over past speeches (not, let me assure you, with the aim of recycling them), and I noted that the last time I spoke at one of the Institute’s lunches was on 24 October 2001. This has prompted me to reflect on how much we have all been through over the past 32 months - both as a financial community and in the larger community. When I last spoke to you the world was just six weeks on from the 9-11 attacks. There was a strong sense that we were heading for difficult times, with a worsening global environment, and with deepening deflation, unemployment, a budget deficit, falling asset prices and a rising number of negative equity mortgages within Hong Kong. Conditions were likely to get worse before they got better, I concluded. Well, after a period of great difficulty, in which things got considerably worse than I think any of us had imagined, conditions are now at last improving. Since around the middle of last year Hong Kong has been enjoying a strong and broadening recovery.