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The following is issued on behalf of the Hong Kong Monetary Authority:
(Approved for Issue by the Exchange Fund Advisory Committee on May 28, 2014)
Report on Currency Board Operations (December 21, 2013 - April 11, 2014)
The Sub-Committee noted that the Hong Kong dollar exchange rate moved within a narrow range of 7.7536 - 7.7656 during the review period, notwithstanding concerns about the US Federal Reserve's reduction in the pace of its asset purchases and a volatile stock market performance. In the money market, the Hong Kong dollar interbank interest rates remained at low levels during the review period, while the Hong Kong dollar forward discounts widened slightly. The Monetary Base edged up to HK$1,255.00 billion from HK$1,250.66 billion, mainly due to an increase in Certificates of Indebtedness.
The Sub-Committee noted that, in accordance with Currency Board principles, changes in the Monetary Base had been fully matched by corresponding changes in foreign reserves.
The Report on Currency Board Operations for the period under review is at Annex.
Monitoring of Risks and Vulnerabilities
The Sub-Committee noted that in the US, latest indicators rebounded robustly in March as severe weather conditions normalised. The Fed continued to taper its asset purchase programme, but uncertainty remained with regard to the timing and pace of interest rate normalisation.
The Sub-Committee noted that in Europe, disinflation continued and deflation intensified in some of the peripheral economies. While the European Central Bank continued to keep monetary policy unchanged in its Governing Council meeting in April, it re-affirmed its commitment to further monetary policy easing and also using unconventional instruments to cope with risks of a prolonged period of low inflation.
The Sub-Committee noted that in Mainland China, the growth momentum softened and there have been market concerns over financial stability risks along with reported credit events. The authorities have pledged the continuation of the current prudent stance of macroeconomic policies.
The Sub-Committee noted that in Hong Kong, moderate growth momentum of the economy has continued and housing market prospects remained uncertain. The fast growth in US dollar loans and cross-border lending continued to warrant close monitoring.
Analysis of Price-based Indicators and Capital Flows
The Sub-Committee noted a paper which took a closer look at what happened to the financial markets and capital flows in East Asia during the summer of 2013.
Ends/Monday, June 9, 2014
Issued at HKT 17:47
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