Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 20 January 2011

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02 Mar 2011

Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 20 January 2011

(Approved for Issue by the Exchange Fund Advisory Committee by circulation on 1 March 2011)

Report on Currency Board Operations (5 October 2010 - 31 December 2010)

The Sub-Committee noted that the Hong Kong dollar exchange rate had strengthened towards the strong-side Convertibility Undertaking in October and early November amid buoyant stock market activities, before softening to 7.7733 at the end of the year, partly because of repatriation of funds raised in the equity market. The exchange rate movements were in line with the Hong Kong dollar interbank interest rates, which had declined in October and early November before rising slightly in December.

2. The Sub-Committee noted that the Monetary Base had increased slightly from HK$1,032 billion to HK$1,040 billion during the period under review.

3. The Sub-Committee noted that, in accordance with Currency Board principles, changes in the Monetary Base had been fully matched by corresponding changes in foreign reserves.

4. The Report on Currency Board Operations for the period under review is at Annex.

 

Monitoring of Risks and Vulnerabilities

5. The Sub-Committee noted that the global economic growth had held up well moving into the fourth quarter of 2010, but divergence became more visible among the economies of the US, Europe and Japan. Economic data and market sentiments in the US had pointed to a positive direction. In Europe, economic recovery had proceeded more gradually, while the European sovereign debt crisis continued to cloud the global economic prospects. In Japan, economic conditions had remained lacklustre. The Sub-Committee also noted that the tightening measures recently introduced by the Mainland authorities should reduce the risk of overheating.

6. The Sub-Committee noted that the transaction volume and number of new applications for residential mortgage loans declined notably in December 2010 after the Government and the HKMA rolled out new measures in mid-November 2010. However, there would be a need to continue to monitor the risks associated with the property market. Moreover, the more rapid pace of credit growth in the past twelve months may signify a gradual accumulation of risks and deserves closer supervisory attention.

 

Analysis of External Factors on Inflation in Hong Kong

7. The Sub-Committee noted a paper assessing the transmission mechanism and impact of external factors on inflation in Hong Kong, covering the impacts on different components of Hong Kong's consumer price index through the import price channel, the aggregate demand channel and the asset price channel.

Hong Kong Monetary Authority
2 March 2011

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Last revision date : 02 March 2011