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Record of discussion of meeting of Exchange Fund Advisory Committee Currency Board Sub-Committee held on January 7
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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 January 27, 2015)

Report on the Currency Board Operations (October 17 to December 18, 2014)

     The Sub-Committee noted that during the review period, the Hong Kong dollar traded within a narrow range of 7.7511 to 7.7583 against the US dollar, driven mainly by equity-related fund flows. Despite increased volatilities in the global financial markets and depreciation pressures in the emerging market currencies in December, the Hong Kong dollar remained stable and continued to trade in an orderly manner. In the money market, the Hong Kong dollar interbank interest rates remained at low levels. The Aggregate Balance stayed virtually unchanged at around HK$239.2 billion and the Monetary Base was broadly steady at HK$1,340.81 billion.

     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
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     The Sub-Committee noted the sharp plunges in global crude oil prices in recent months, which could boost global growth and pose global disinflationary pressure. The Sub-Committee also noted the possible implications for monetary policy in the advanced economies, as well as the macro risks to net oil exporters in the emerging markets.

     The Sub-Committee noted that in the US, the labour market recovery continued to strengthen and the Fed had updated its forward guidance, stating that the Fed could be patient in beginning to normalise the stance of monetary policy. It was noted that the timing and pace of future interest rate hikes by the Fed remained data dependent.

     The Sub-Committee noted that in Europe, the sluggish economic activities and low inflation continued to weigh on the economic outlook of the euro area. The Sub-Committee also noted that the lower than expected take-up of the Targeted Longer-Term Refinancing Operations might add to the strain of the European Central Bank to expand its balance sheet by its target of around 1 trillion Euros.

     The Sub-Committee noted that in Japan, indicators continued to suggest weak recovery. The Sub-Committee also noted that the sovereign credit rating was downgraded following a delay of the planned second consumption tax hike.

     The Sub-Committee noted that in Mainland China, growth momentum had continued to moderate and the People's Bank of China lowered the benchmark interest rates, the first time since July 2012.

     The Sub-Committee noted that in Hong Kong, the economy expanded moderately running into Q4 2014.  Loan growth slowed further in November, while the property market remained active.

The divergence of monetary policy paths in the US vis-à-vis Europe and Japan and the effect on the international US dollar credit
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     The Sub-Committee noted a paper which examined how the divergence of monetary policy paths in the US vis-à-vis Europe and Japan and the functioning of the foreign exchange swap markets would affect the supply of international US dollar loans by global banks.

A review of international experiences with macro-prudential measures
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     The Sub-Committee noted a paper which reviewed international experiences in the use of macro-prudential policies to maintain financial stability.

Ends/Monday, February 16, 2015
Issued at HKT 16:31

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