Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 12 January 2026

The Exchange Fund Advisory Committee's Currency Board Sub-Committee reviewed the operations and conditions of the currency board from October to December 2025. During this period, the Hong Kong dollar ("HKD") traded within a range of 7.7673 to 7.7900 against the US dollar ("USD"). The HKD appreciated in mid-October, bolstered by demand for dividend payments and net inflows from the Southbound Stock Connect, before easing in mid-November amidst softened interest rates. Toward the end of the year, the HKD strengthened due to seasonal demand.

The HKD interbank rates ("HIBORs") generally mirrored their USD counterparts under the Linked Exchange Rate System, but were also influenced by local supply and demand for HKD funding. HIBORs eased during October and November, driven by equity-related demand, before firming again toward the end of the year due to seasonal factors. The Sub-Committee noted that Best Lending Rates were reduced by 12.5 basis points in early November but did not see further cuts in December, with rates ranging from 5.000% to 5.500% at the end of the review period. Convertibility Undertakings were not triggered, and the Aggregate Balance remained stable at around HK$54 billion. No abnormalities were observed in the use of the Discount Window. Overall, the HKD exchange and interbank markets operated smoothly and orderly. The Sub-Committee also noted that the Monetary Base increased to HK$2,040.65 billion at the end of the period, aligning with Currency Board principles where all changes were matched by foreign reserves.

The Sub-Committee highlighted the risks and vulnerabilities in the global and regional economic outlooks. In the US, the trade truce and government reopening eased market jitters, but the economy continued to face challenges, including a ‘K-shaped’ consumption divergence, concerns over the sustainability of the AI boom, and a weakening labor market. In Asia, export diversification and the AI boom supported economic growth, but trade policy uncertainty and the potential propagation effects of US trans-shipment tariffs remained headwinds. In China, economic growth moderated in October and November but should ease downward pressures on exports and GDP growth due to the China-US trade truce. China plans to build a modern industrial system, enhance technological self-reliance, and boost consumption in the 15th Five-Year Plan period (2026-2030). In Hong Kong, economic growth in Q4 2025 was driven by solid merchandise exports and retail sales stabilization. Looking ahead, the Hong Kong economy is projected to grow at a moderate pace in 2026, supported by tech product demand and improved business sentiment amid eased trade tensions and interest rate cuts. The housing market recovered further, while the commercial real estate sector continued to face challenges of high vacancy rates.