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Record of Discussion of the Meeting of
the Exchange Fund Advisory Committee
Currency Board Sub-Committee held on 26 October 2017

(Approved for Issue by the Exchange Fund Advisory Committee on 30 November 2017)

Report on the Currency Board Operations (16 June – 6 October 2017)

  1. The Sub-Committee noted that during the review period, the Hong Kong dollar (HKD) interbank interest rates remained soft generally. Driven by interest carry trade activities amid the negative HKD-US dollar interest rate spreads, the HKD spot exchange rate eased gradually between mid-June and late-August. Towards the end of the review period, the HKD exchange rate strengthened slightly amid slower momentum of interest carry trade activities and some covering of short positions.
  2. The Sub-Committee noted that the Aggregate Balance declined due to issuances of additional Exchange Fund Bills. The Monetary Base increased slightly to HK$1,678.96 billion, mainly driven by an increase in Certificates of Indebtedness.
  3. The Sub-Committee further noted that, in accordance with the Currency Board principles, all changes in the Monetary Base had been fully matched by 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

  1. The Sub-Committee noted that in the US, the Federal Reserve’s latest projections suggested that it would likely look through the recent weakness in inflation and continue with further gradual rate hikes, while the impacts of its balance sheet reduction programme on domestic and international financial conditions remained to be seen.
  2. The Sub-Committee noted that in the euro area and Japan, notwithstanding subdued underlying inflationary pressures, their central banks might need to slow down the pace of asset purchases due to scarcity of assets.
  3. The Sub-Committee noted that in Mainland China, while the recent cooling down of the housing market could weigh on investment growth in the short run, there were signs that the investment mix had improved, with higher investment in industries such as environmental protection and education.
  4. The Sub-Committee noted that in Hong Kong, economic momentum was likely to remain solid in the third quarter, while the property market outlook was still uncertain.

 

Measuring the Effect of Mortgage Debt Service Burden on Private Consumption

  1. The Sub-Committee noted a study which examined the effect of higher mortgage debt service burden on private consumption.

 

Hong Kong Monetary Authority
6 December 2017

Last revision date: 6 December 2017
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