The Hong Kong Monetary Authority yesterday attempted to convince the market that interest rates, despite being pushed higher by the Asian crisis, were still competitive compared with the region. An executive director of the external relations division, James Lau, said a study revealed the real three-month interbank rate - the market rate minus inflation - was 3.47 per cent on February 12. This represented a rise of 4.87 percentage points from the minus 1.4 per cent level on January 1 last year. During the same period, the real three-month interbank rate in the United States rose 1.37 percentage points from 2.49 per cent to 3.86 per cent amid declining inflation, he said. Singapore's real three-month rate was 4.15 per cent on February 12, South Korea's was 12.32 per cent, Indonesia's 50.53 per cent and Thailand's 7.74 per cent. Mr Lau said these figures demonstrated that the currency board effectively contained rate rises in times of speculative pressure. The Government's practice of exercising fiscal discipline by maintaining a sizeable budget surplus contained the growth in money supply, constraining the increase in interest rates and inflation, he said. The higher market rates were the result of the inclusion of an Asian risk premium in the face of sharp external shock arising from the regional turmoil, he added. Admitting high market rates would make mortgage borrowers and other sectors of the economy suffer, Mr Lau said that this was a feature of the currency board which required adjustment in the economy to accommodate the fixed exchange rate. 'Implementing a currency board, we have chosen to control the exchange rate at the expense of surrendering our capacity to control interest rates,' he said. Mr Lau dismissed market suggestions that the authority had deliberately injected liquidity into the banking system to lower rates in the past few weeks in a bid to create an environment favouring a cut in the prime rate. He said the injections followed placements by the Treasury into the Exchange Fund due to tax collected. There had been no change in the overall level of liquidity in the system as funds were merely transferred from taxpayers' accounts to the Exchange Fund and then to the money market, he said. Mr Lau said the authority had the discretion to control the pace of such injections which would affect market rate levels but seldom exercised the power.