Record of discussion of meeting of Exchange Fund Advisory Committee Currency Board Sub-Committee held on October 26

The following is issued on behalf of the Hong Kong Monetary Authority:

(Approved for Issue by the Exchange Fund Advisory Committee on November 30, 2017)
Report on the Currency Board Operations (June 16 – October 6, 2017)
     The Sub-Committee noted that during the review period, the Hong Kong dollar (HKD) interbank interest rates remained soft generally.  Driven by interest carry trade activities amid the negative HKD-US dollar interest rate spreads, the HKD spot exchange rate eased gradually between mid-June and late-August.  Towards the end of the review period, the HKD exchange rate strengthened slightly amid slower momentum of interest carry trade activities and some covering of short positions. 
     The Sub-Committee noted that the Aggregate Balance declined due to issuances of additional Exchange Fund Bills.  The Monetary Base increased slightly to HK$1,678.96 billion, mainly driven by an increase in Certificates of Indebtedness.
     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.
     The Report on Currency Board Operations for the period under review is at the Annex.
Monitoring of Risks and Vulnerabilities

     The Sub-Committee noted that in the US, the Federal Reserve's latest projections suggested that it would likely look through the recent weakness in inflation and continue with further gradual rate hikes, while the impacts of its balance sheet reduction programme on domestic and international financial conditions remained to be seen.
     The Sub-Committee noted that in the euro area and Japan, notwithstanding subdued underlying inflationary pressures, their central banks might need to slow down the pace of asset purchases due to scarcity of assets. 
     The Sub-Committee noted that in Mainland China, while the recent cooling down of the housing market could weigh on investment growth in the short run, there were signs that the investment mix had improved, with higher investment in industries such as environmental protection and education.    
     The Sub-Committee noted that in Hong Kong, economic momentum was likely to remain solid in the third quarter, while the property market outlook was still uncertain.

Measuring the Effect of Mortgage Debt Service Burden on Private Consumption
     The Sub-Committee noted a study which examined the effect of higher mortgage debt service burden on private consumption.

Ends/Wednesday, December 6, 2017
Issued at HKT 16:30