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Record of Discussion of the Meeting of
the Exchange Fund Advisory 
Currency Board Sub-Committee held on 27 April 2017

(Approved for Issue by the Exchange Fund Advisory Committee by Circulation)

Report on the Currency Board Operations (16 December 2016 – 5 April 2017)

  1. The Sub-Committee noted that during the review period, the Hong Kong dollar interbank interest rates were broadly steady despite the rise in the US dollar interest rates. Alongside widening negative spreads between the Hong Kong dollar and the US dollar interest rates, the Hong Kong dollar exchange rate softened gradually and traded within a range of 7.7542–7.7720, while the Hong Kong dollar forward points moved into deeper discounts.
  2. The Sub-Committee noted that the Aggregate Balance stayed virtually unchanged, and the Monetary Base increased slightly to HK$1,653.75 billion 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 were 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 raised the federal funds rate by 25 basis points in March but did not change its forward guidance. There remained a risk that the “low for long” market expectations could later lead to significant market volatility if rising inflation pressures eventually necessitated a much quicker monetary tightening.
  2. The Sub-Committee noted that in Europe and Japan, the near-term growth and inflation outlook continued to improve but underlying inflationary pressure remained subdued.
  3. The Sub-Committee noted that in Mainland China, the government lowered the growth target to around 6.5% for 2017 (from 6.5 – 7% for 2016). While risks of overheating property markets and capital outflow pressures appeared to have eased, they continued to warrant close attention.
  4. The Sub-Committee noted that in Hong Kong, economic activities might have turned more solid stepping into 2017, while interest rates remained soft despite the March US rate hike. Property market sentiment had been buoyant in recent months.

Analysis on the Determinants of HIBOR-LIBOR Spreads

  1. The Sub-Committee noted a study which examined the determinants of HIBOR-LIBOR spreads.

 

Hong Kong Monetary Authority
7 June 2017

Last revision date: 7 June 2017
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