(Approved for Issue by the Exchange Fund Advisory Committee on 17 July 2025)
Report on Currency Board Operations (17 April 2025 – 20 June 2025)
- The Currency Board Sub-Committee (Sub-Committee) noted that the Hong Kong dollar (HKD) traded within a range of 7.7500 – 7.8499 against the US dollar (USD) during the review period. The HKD exchange rate firmed in the second half of April due to buoyant capital market activities and, in particular, continued net inflows through the Southbound Stock Connect. In early May, amid the sharp appreciation of some Asian currencies against the USD and continued equity-related demand, the strong-side Convertibility Undertaking (CU) was triggered four times, with the HKMA selling HK$129.40 billion under the strong-side CU. The Aggregate Balance rose correspondingly to around HK$174 billion. While HKD interbank rates (HIBORs) generally track their USD counterparts under the Linked Exchange Rate System, they are also influenced by the local supply and demand of HKD funding. HIBORs softened as the supply of HKD funding was relatively abundant after the CU triggering. Widened negative HKD-USD interest rate spread incentivised carry trade activities which weighed on the HKD, easing to levels close to the weak-side CU in June. No abnormality was noted in the usage of the Discount Window. Overall, the HKD exchange and interbank markets continued to trade in a smooth and orderly manner.
- The Sub-Committee noted that the Monetary Base increased to HK$2,125.03 billion at the end of the review period. In accordance with the Currency Board principles, all changes in the Monetary Base had been fully matched by changes in foreign reserves.
- The Report on Currency Board Operations for the review period is at Annex.
Monitoring of Risks and Vulnerabilities
- The Sub-Committee noted that the series of US tariff announcements since April, combined with heightened concerns over fiscal sustainability, had triggered volatility in global financial markets and contributed to a surge in long-term government bond yields across major advanced economies. For Asian economies, the imposition of widespread US tariffs and the ongoing uncertainty might undermine the region’s growth momentum, exert pressure on regional financial markets, and impact its integrated supply chain networks.
- The Sub-Committee noted that in Mainland China, exports continued to grow at a solid pace in April and May amid the US tariff hikes. While the China-US trade talks had helped ease some concerns around the Mainland’s trade outlook, the economic growth outlook continued to face headwinds. In May, the Mainland authorities announced a financial policy package, which included cuts in the policy rate and the required reserve ratio, and rolled out measures to boost consumption, particularly in the services sector.
- The Sub-Committee noted that in Hong Kong, while economic growth was higher than expected in Q1, the uncertainties stemming from the tariffs continued to weigh on the economy. However, multifaceted supportive measures, along with decreasing HKD interest rates and improved sentiment on the Mainland, could offset the adverse effects somewhat. Meanwhile, housing market sentiment showed signs of stabilisation amid the de-escalation of trade tensions and the decrease in mortgage rates, with transaction volume remaining broadly steady in May. The commercial real estate markets continued to face challenges due to the persistently high vacancy rates.
Interbank Liquidity and Interbank Interest Rates
- The Sub-Committee noted a paper that studied the relationship between HKD interbank liquidity and interbank interest rates.
Hong Kong Monetary Authority
13 August 2025
