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Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 14 June 2016

(Approved for Issue by the Exchange Fund Advisory Committee on 8 July 2016)

Report on the Currency Board Operations (6 April 2016 – 25 May 2016)

The Sub-Committee noted that during the review period, the Hong Kong dollar moved within a narrow range of 7.7550–7.7679 against the US dollar.  In the money market, the Hong Kong dollar interbank interest rates continued to stay at low levels.  The Convertibility Undertakings had not been triggered during the review period.  The Aggregate Balance declined as additional Exchange Fund Bills were issued.  The Monetary Base decreased slightly to HK$1,600.28 billion mainly due to a decline in Certificates of Indebtedness.  All changes in the Monetary Base were fully matched by changes in foreign reserves in accordance with the Currency Board principles.   

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

Monitoring of Risks and Vulnerabilities

3. The Sub-Committee noted that in the US, the employment report in May 2016 came in much weaker than expected.  Markets had therefore revised down the chances of a June rate hike significantly and continued to expect a very flat path of US interest rate increases.  However, it was also noted that the US underlying inflation might surprise on the upside, increasing the risk of a stagflation scenario.

4. The Sub-Committee noted that in Europe, the European Central Bank kept its monetary policy unchanged at the June policy meeting as widely expected.  The risk of Brexit remained the key swing factor for the global financial markets in the near term. 

5. The Sub-Committee noted that in Mainland China, while growth appeared to have moderated in Q2 2016, foreign exchange reserves decline and RMB depreciation expectations had stabilised recently.  The fast house price rises in first-tier cities had also increasingly spread to second-tier cities.     

6. The Sub-Committee noted that in Hong Kong, growth momentum moderated further in Q1 2016.  While the unemployment rate held steady, the construction sector and the consumption/tourism-related segments remained under pressure.  The residential property market seemed to have shown signs of stabilisation recently.

Update on External Demand for the Hong Kong Dollar Currency

7. The Sub-Committee noted a paper which updated the estimates of the external demand for the Hong Kong dollar currency in light of the marked increase in the Hong Kong dollar currency-to-GDP ratio since the global financial crisis.


Hong Kong Monetary Authority
25 July 2016

Last revision date: 25 July 2016
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