Press Releases

Record of Discussion of the Meeting of
the Exchange Fund Advisory Committee
Currency Board Sub-Committee held on 12 January 2012

(Approved for Issue by the Exchange Fund Advisory Committee by circulation on 20 February 2012)

Report on Currency Board Operations (21 September 2011 – 21 December 2011)

The Sub-Committee noted that the Hong Kong dollar exchange rate traded within a narrow range of 7.7671 – 7.8019 during the period.  The Hong Kong dollar interbank interest rates rose slightly towards the end of December along with their US dollar counterparts, and Hong Kong dollar forward discounts narrowed reportedly because of increased demand for Hong Kong dollar liquidity.

2. The Sub-Committee noted that the Monetary Base climbed from HK$1,056.02 billion to HK$1,066.49 billion, driven by a rise in Certificates of Indebtedness.

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 European leaders announced in the European Union Summit in December 2011 major additional reform measures to help resolve the sovereign debt crisis, namely the introduction of a new fiscal compact, and acceleration of the reform and introduction of stabilisation funds.  The Sub-Committee also noted that the European Central Bank cut the policy interest rate by 25 basis points in the Governing Council Meeting in December 2011, and announced further liquidity support measures, including the conduct of two 3-year longer-term refinancing operations, a reduction in the required reserve ratio, and an expansion of the collateral pool.  The Sub-Committee noted that the first quarter of 2012 would be a critical period as a large volume of government and bank debt would be due for refinancing.

6. The Sub-Committee noted that fiscal issue would remain a concern for the US economy.  The Sub-Committee also noted that near-term growth outlook for the Hong Kong economy had become more uncertain as the sustained weakness on the external front was spilling over to the broader economy.

Credit Developments in Hong Kong

7. The Sub-Committee noted a paper exploring how Mainland factors might affect Hong Kong’s monetary conditions through direct credit channels.  The Sub-Committee noted that higher carrying costs of borrowing on the Mainland tended to lead to faster growth in Hong Kong’s external loans and higher loan-to-deposit ratios, and tighter access to credit on the Mainland would appear to generate similar effects. 

Hong Kong Monetary Authority
22 February 2012