We do admit that the higher interest rates affected the stock market and property market. But we should also remember that high interest rates are necessary to cool the overheating in the asset markets that prevailed until recently. Given the excess demand situation in Hong Kong as the economy grew by 6.4% in the second quarter, a correction was expected. A moderation in property prices will help bring houses to more affordable levels to homebuyers. 34. Higher interest rates will also bring down inflation, by encouraging savings. Once inflation and the asset markets correct under the free market regime, Hong Kong will become much more competitive. In real effective exchange rate terms, the competitive effect of neighbouring depreciation will be offset somewhat by a rise in domestic inflation. Higher interest rates will also bring the external account more in line with the fundamentals and improve the trade balance. Hong Kong, as a free market economy, is adjusting exactly according to the textbook. 35. Moreover, our banking sector is very robust and strongly capitalized to withstand any shocks. Operating profits of the local banks grew by about 18% in the first half of 1997 and the bad debt charged fell in the first half of 1997 as the level of classified loans was 2.08%, down from 2.91% a year earlier. The capital adequacy ratios of local banks as a whole exceeds 17%. The average loan-to-value ratio is 70%, with the actual measured loan-to-value ratio being 53.3%, according to our survey at end September 1994.

They provide preliminary information on expected producer price performance, an important link for the price-setting process in the economy. Consumption and savings tendencies of the population are revealed through relevant indicators. In conclusion, the economic sentiment indicator combines the businesses’ and consumers’ opinions, giving hints of the economic prospects in the short run. I would like to speak at length about the importance and informational utility of the confidence and the foregoing indicators. But, I would rather emphasize the respect the users should pay to such indicators, opting for being oriented to the large information flow through them. I regard this only as the beginning of a comprehensible and transparent cooperation. To this end, other special meetings and activities will follow, enriching various groups of interest with knowledge on business confidence or tendency indicators. I have confidence in the added values they will bring to users’ analyses. But, I advise and require of users, researchers, economic journalists of written and electronic media, students and pupils, businesses and consumers and the broad public, to rightly understand these indicators, before using them. These tendencies have resulted from businesses’ and consumers’ opinions and do not constitute the official stance of the Bank of Albania. The Bank of Albania has built them on the basis of an advanced methodology. It has made use of the information obtained from interviewed businesses and consumers and it has confidence in their qualitative assessments and in those indicators. Their publication enhances the public transparency and makes the decision-making process more comprehensible.