Political parties and even some analysts will criticise yesterday's rate cut as being too small. Given the sharp fall in long-term interest rates this week, a larger cut certainly would have been possible, but such criticism is misplaced.
The biggest danger is not that interest rates are too high. In fact, they are already lower than they have been throughout the past year and the trend is clearly downwards. The main hurdle facing small and medium-sized businesses is the reluctance of banks to lend, rather than the rates they charge.
The real problem is a growing perception that the financial crisis is over, as suggested by the return of small investors to the stock market and the queues of home-buyers for new developments. Encouraged by this rate cut, frenzied activity is likely at today's sale of new flats along the airport railway. Property speculators have already made an unwelcome return.
Such activity disguises the fact that, despite some recent signs of improvement, the economy is still in a very weak state. Unemployment hit a record high this week. Growth figures for the third quarter, which are to be released soon, will be worse than anything seen so far. Many observers fear that the Hang Seng Index is far above its true value, artificially buoyed by the $118 billion in shares which the Government has, in effect, withdrawn from active trading through its intervention in August.
The thousands of new flats that developers plan to sell in the coming months make it hard to believe the present recovery in property prices can be sustained.
As Financial Secretary Donald Tsang Yam-kuen warned yesterday, Hong Kong's economic data will continue to be dismal for at least another seven months. Nor can the local economy properly revive until Japan begins to do so, of which there is little or no sign.
