Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 5 January 2017

(Approved for Issue by the Exchange Fund Advisory Committee on 23 January 2017)

Report on the Currency Board Operations (29 September 2016 – 15 December 2016)

1. The Sub-Committee noted that during the review period, the Hong Kong dollar traded within a range of 7.7532–7.7596 against the US dollar. Despite the market volatilities triggered by the US presidential election, the Hong Kong dollar remained largely stable, and the local interbank money markets continued to operate smoothly. Towards the end of the review period, the Hong Kong dollar interbank interest rates and the Hong Kong dollar forward points picked up, reflecting in part a catch-up with the increases in the US dollar interbank interest rates and in part the year-end funding demand.  
2. The Sub-Committee noted that the Aggregate Balance stayed virtually unchanged, and the Monetary Base increased slightly to HK$1,626.25 billion mainly due to an increase in Certificates of Indebtedness.
3. The Sub-Committee further 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 the Annex.

Monitoring of Risks and Vulnerabilities

5. The Sub-Committee noted that in the US, policy uncertainties had heightened following the US presidential election, while there were signs of building up of inflationary pressures. It remained uncertain if the Federal Reserve would hasten interest rate normalisation, but long-term bond yields had and could surge further on rising inflation expectations.
6. The Sub-Committee noted that in Europe and Japan, the heightened global economic and policy uncertainties might further weigh on the fragile recovery.
7. The Sub-Committee noted that in Mainland China, market concerns about hard-landing risks continued to subside, while the property market showed tentative signs of cooling on tightening measures.
8. The Sub-Committee noted that in Hong Kong, economic momentum gained traction in the fourth quarter, while interest rates had crept up recently. The property market outlook was subject to headwinds from the new stamp duty measures and US interest rate hikes. 

Estimating the Drivers of Hong Kong’s Housing Price Short-Run Dynamics

9. The Sub-Committee noted a paper which examined the drivers of the short-run dynamics of Hong Kong’s housing prices based on an empirical model.

Hong Kong Monetary Authority
17 February 2017