The HKMA would do so at a level of defence, which would of course be close to 7.80, considered suitable by the HKMA in the light of prevailing market conditions. There is therefore an element of “constructive ambiguity”. This approach is arguably less transparent but I am not in favour of showing all my cards to speculators. Furthermore, it is very much in accordance with Hong Kong’s free market philosophy that the foreign exchange market be left very much alone. I therefore see no reason why our approach should be changed. 22 The HKMA also accepts certain high quality private sector debt securities as eligible securities for Repo under LAF. However, the interest rate charged by the HKMA on LAF Repo involving those private sector paper is set at 25 basis points above that for the Repo of Exchange Fund Bills and Notes. Private sector debt securities normally accounts for less than 10% of LAF Repo activities. 23 To improve market order and remove uncertainty towards the banks’ access to the LAF, the HKMA issued a circular to  banks on 12 November 1997 clarifying the definition of “repeated borrowers” upon which a penal rate may be charged on LAF borrowing. “repeated borrowers” are defined as those licensed banks which have borrowed through LAF on eight occasions in any period of 25 days or on four consecutive days in which LAF is open. BIS Review 19/1998  - 12 (d) The exercise of discretion 45.
On the other hand, the contagious nature of financial turmoil with globalized financial markets is such that the possibility of further attacks on our currency, unsuccessful as they inevitably would turn out to be, could not be dismissed. The banks have therefore been somewhat reluctant to lend longer term money in the interbank market since the October shock, even though they are flushed with liquidity, as reflected by the clearing balance of the banking system being at a high level. This perhaps reflects a lack of depth in the debt market which we have been separately trying to address. As a result, while the short term interest rates of the Hong Kong dollar, for example for overnight money, have fallen to quite low levels, significantly below corresponding US dollar interest rates, the yield curve has become sharply upward sloping, with one-month and longer term money commanding a significant premium over corresponding US dollar interest rates. 25. But I believe the Hong Kong dollar yield curve will in time flatten further, as it has done so after the sharp hike on 23 October 1997. There will, nevertheless, be occasional jumps, as sentiment continued to be affected by events in other economies in the region and possibly beyond.