Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 3 July 2015

(Approved for Issue by the Exchange Fund Advisory Committee on 24 July 2015)

Report on the Currency Board Operations (14 April – 18 June 2015)

The Sub-Committee noted that during the review period, the Hong Kong dollar traded within a narrow range of 7.7500 – 7.7562 against the US dollar.  The Hong Kong dollar interbank interest rates remained at low levels. The strong-side Convertibility Undertaking (CU) was triggered multiple times between 20 and 24 April 2015 amid strong equity-related and commercial demand.  As a result, the Aggregate Balance expanded to HK$310.69 billion and the Monetary Base increased to HK$1,420.94 billion.

2. 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.

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

Monitoring of Risks and Vulnerabilities

4. The Sub-Committee noted that in the US, the Federal Reserve’s communication after the Federal Open Market Committee meeting in June suggested that it would likely start hiking rate this year.  The Sub-Committee also noted a number of factors that might cause US inflation to surprise on the upside.

5. The Sub-Committee noted the latest development of the bailout negotiation between Greece and its international creditors, which might continue to weigh on market sentiment.

6. The Sub-Committee noted that in Mainland China, there were tentative signs of improvement in property market conditions.  The Sub-Committee also noted the policy measures introduced by the Mainland authorities to support growth, facilitate economic re-balancing and contain financial risks.

7. The Sub-Committee noted that in Hong Kong, latest data continued to suggest soft growth momentum in recent months.  The Sub-Committee also noted the highly-stretched housing affordability and the headwinds to the property market when the US rate hike cycle started. 

The Hong Kong Dollar Real Effective Exchange Rate and its Macroeconomic Implications

8. The Sub-Committee noted an analysis on recent appreciation of the real effective exchange rate of the Hong Kong dollar and its macroeconomic implications for Hong Kong.

Hong Kong Monetary Authority
10 August 2015