Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 4 May 2026

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

Report on Currency Board Operations (30 December 2025 – 22 April 2026)

1. The Currency Board Sub-Committee (Sub-Committee) noted that the Hong Kong dollar (HKD) traded within a range of 7.7818 – 7.8387 against the US dollar (USD) during the review period.  The HKD eased in early 2026 as HKD interbank rates (HIBORs) softened upon the fading of year-end funding demand, thereby increasing the incentive for carry trade activities.  With uncertainty arising from the Middle East conflict in early March, investors unwound short HKD positions and drove the HKD stronger.  Nonetheless, carry trade activities incentivised by HKD interest rates moving lower than their USD peers had brought the HKD weaker, and the thin liquidity due to global risk-off sentiment had exaggerated the spot price movements.  Towards the quarter end, the HKD rebounded slightly due to the unwinding of short positions as short-dated interest rates firmed.  While HIBORs generally tracked their USD counterparts under the Linked Exchange Rate System, they were also influenced by the local supply and demand of HKD funding.  Capital market-related HKD funding demand subsided amid the escalating geopolitical risk in the Middle East.  HKD short-dated interest rates eased gradually in response, before firming again towards the quarter end and remaining firm thereafter.  The Convertibility Undertakings were not triggered and the Aggregate Balance was stable at around HK$54 billion.  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.
2. The Sub-Committee noted that the Monetary Base increased to HK$2,061.37 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.
3. The Report on Currency Board Operations for the review period is at Annex.

Monitoring of Risks and Vulnerabilities

4. The Sub-Committee noted that the Iran conflict had disrupted commodity supplies, adding global inflationary pressures, as well as triggering financial market sell-offs and undermining prospects for global economic growth.  The ongoing stalemate in US-Iran negotiations, coupled with the newly imposed US naval blockade, had intensified upward pressure on energy prices.  Combined with renewed US trade policy uncertainty following the Supreme Court’s International Emergency Economic Powers Act ruling, these developments had significantly complicated the outlook for global monetary policy.
5. The Sub-Committee noted that in Asia, economic resilience had continued to be supported by strong exports, driven by both the ongoing demand for artificial intelligence (AI)-related goods and the further expansion of non-tech products.  However, the Iran conflict had increased uncertainty across the region, given that most regional economies were net energy-importers.  The severity of the impact would depend heavily on the breadth and duration of the conflict, as well as economy-specific exposures, economic structures, and policy responses.
6. The Sub-Committee noted that in the Chinese Mainland, economic activities improved and beat expectations in Q1 2026 while deflationary pressure significantly eased.  The economic outlook faced new uncertainties from the Iran conflict.  At the Two Sessions in March, the Central Government lowered the 2026 growth target to 4.5–5% and kept the fiscal deficit target unchanged at 4% of GDP, with stable off-budget special government bond issuance.
7. The Sub-Committee noted that in Hong Kong, the economy continued to expand in early 2026, supported by strong growth of merchandise exports, inbound tourism and retail sales.  However, the energy shock triggered by the military conflict in the Middle East had shown early signs of impact on certain sectors.  Meanwhile, the housing market maintained its upward momentum amid positive market sentiment, while the commercial real estate markets remained under pressure but with some signs of improvement in the Grade A offices in prime districts observed.  Looking ahead, downside risks to the economic outlook included elevated uncertainty surrounding the ongoing geopolitical tensions, the sustainability of the AI investment boom, evolving global trade policies and the US policy rate path.

Review of External Demand for HKD Currency

8. The Sub-Committee noted a paper that reassessed the evolution of demand for HKD currency, amid growing e-payment adoption and the post-pandemic environment in recent years.

Hong Kong Monetary Authority
15 June 2026