The report summarizes the meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 2 July 2025, detailing the operations of the Currency Board, noting the impacts of US tariffs on global and regional markets, and reviewing interbank liquidity and interest rates.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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During the review period, the Hong Kong dollar ("HKD") fluctuated between 7.7500 and 7.8499 against the US dollar ("USD"). In late April, the HKD exchange rate strengthened due to robust capital market activities and increased inflows through the Southbound Stock Connect. However, in early May, the strong-side Convertibility Undertaking ("CU") was activated four times, resulting in the Hong Kong Monetary Authority ("HKMA") selling HK$129.40 billion. This led to a rise in the Aggregate Balance to around HK$174 billion. While Hong Kong Dollar interbank rates ("HIBORs") typically mirrored USD rates, they softened due to ample HKD funding post-CU. The widening negative HKD-USD interest rate spread encouraged carry trade activities, exerting pressure on the HKD and pushing it towards the weak-side CU level in June. No irregularities were observed in the use of the Discount Window, and both the HKD exchange and interbank markets remained stable and orderly.
At the end of the review period, the Monetary Base increased to HK$2,125.03 billion. The Currency Board principles were adhered to, ensuring all Monetary Base changes were fully offset by foreign reserves.
Global financial markets experienced increased volatility due to a series of US tariff announcements and fiscal sustainability concerns, which led to a surge in long-term government bond yields across major economies. Asian markets faced potential growth momentum, market pressures, and supply chain disruptions due to these factors.
Despite US tariffs, Mainland China saw consistent export growth in April and May, albeit with trade growth facing headwinds. The authorities introduced financial policy measures, including rate cuts and reserve ratio adjustments, to stimulate consumption, particularly in the services sector.
Hong Kong's economic growth in Q1 exceeded expectations but was dampened by ongoing tariff uncertainties. Supportive measures, decreasing HKD interest rates, and improved Mainland sentiment helped offset these adverse effects. The housing market showed signs of stabilization due to decreasing mortgage rates and trade tensions' easing. However, the commercial real estate market continued to face challenges with persistently high vacancy rates.
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