Market reaction to five-point emergency plan positive although interbank rates stay firm The Hong Kong Monetary Authority (HKMA) might use more measures to boost liquidity in the financial system to ensure the market operated properly, said Joseph Yam Chi-kwong, the chief executive of the de facto central bank. 'We may consider, if necessary, further measures to enhance our ability to cope with further stresses in liquidity conditions,' Mr Yam said in his weekly online column yesterday. The authority announced on Tuesday a five-point emergency plan to ease the liquidity crunch as banks were unwilling to lend to each other amid the global financial turmoil. The new measures included widening the scope of the discount window - a funding facility provided by the HKMA, and directly funding banks holding collateral. However, interbank rates remained firm yesterday, the first effective day of the measures. One-month rates traded at 4.45 per cent, similar to Tuesday's levels, although overnight rates softened to 0.75 per cent in the late session from the 1.5 per cent to 2 per cent seen most of the day. An HKMA spokesman said the market's initial reaction was positive and banks were more willing to lend while demand for funds appeared to be less aggressive. He declined to disclose which banks made use of the new measures. Daniel Chan Po-ming, a senior investment strategist at DBS Bank (Hong Kong), said the measures would help banks secure funding and contain sharp rises in interbank rates. 'But lenders are still cautious since the global credit market remains under stress,' Mr Chan said. The United States government has proposed a US$700 billion budget to buy bad assets held by the country's financial groups in a move to prevent more failures of key institutions. Mr Yam said public money was sometimes necessary to help restore confidence in the financial system and prevent a meltdown, which would be even costlier to the community. 'It takes time, and possibly severe pain, for stakeholders in a free-market economy to realise and accept the inevitability of market intervention in special circumstances and the use of public money in the financial system,' he said. The US had to make the proposal work although some critics said 'the follies of a generation of irresponsible financiers will fall on future generations of taxpayers', Mr Yam said. He also said the US authorities might consider the need to involve the public sector in recapitalising the financial system as it had become difficult to raise funds in the market. 'Prompt and adequate recapitalisation was crucial to prevent confidence in the financial system and the viability of financial institutions from sliding away,' Mr Yam said.