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

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

Report on the Currency Board Operations (6 April – 15 June 2017)

  1. The Sub-Committee noted that during the review period, the Hong Kong dollar interbank interest rates remained soft despite continued rises in the US dollar interest rates. Reflecting increased carry trade activities amid widening negative Hong Kong dollar-US dollar interest rate spreads, the Hong Kong dollar exchange rate softened gradually to trade within a range of 7.7700 – 7.8002. The discounts of Hong Kong dollar forward points also widened, largely reflecting the interest rate gap between Hong Kong dollar and US dollar.
  2. The Sub-Committee noted that the Aggregate Balance stayed virtually unchanged, and the Monetary Base increased slightly to HK$1,656.53 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 hiked rate in June and announced its plan to begin reducing the size of its balance sheet this year. The impact of the balance sheet normalisation on the real economy and the financial market was uncertain.
  2. The Sub-Committee noted that in Europe and Japan, the near-term growth performance had continued to improve but underlying inflationary pressure remained subdued.
  3. The Sub-Committee noted that in Mainland China, housing price growth moderated following newly announced tightening measures, but their long-term effectiveness remained to be seen.
  4. The Sub-Committee noted that in Hong Kong, economic activities had turned more solid entering Q2 2017, while interest rates remained soft despite the US rate hikes. Property market sentiment remained buoyant in recent months.

 

Analysis on Real Estate Prices and Corporate Borrowing in Mainland China

  1. The Sub-Committee noted a study which examined how valuation changes of property might affect the debt dynamics of firms in Mainland China.

 

Hong Kong Monetary Authority
16 August 2017

Last revision date: 16 August 2017
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