Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 2 July 2026

Monetary Operations and Currency Board Stability

On Fri, 07 Aug, the Hong Kong Monetary Authority released the Record of Discussion of the Meeting of the Exchange Fund Advisory Committee Currency Board Sub-Committee held on 2 July 2026, which was approved for issue by the Exchange Fund Advisory Committee on 15 July 2026. The Sub-Committee noted that the Hong Kong dollar ("HKD") traded within a range of 7.8289 – 7.8397 against the US dollar ("USD") during the review period of 23 April 2026 – 22 June 2026. The HKD remained broadly stable, with fluctuations largely driven by flows related to Southbound Stock Connect and other capital market activities. While HKD interbank rates ("HIBORs") generally tracked their USD counterparts under the Linked Exchange Rate System, they were also influenced by the local supply and demand of HKD funding. The overnight HIBOR recorded occasional upticks, reflecting month-end and capital market-related funding demands, while HIBORs at longer tenors increased modestly during the reporting period. The Convertibility Undertakings were not triggered and the Aggregate Balance was stable at around HK$54 billion. No abnormality was noted in the usage of the Discount Window. Overall, the HKD exchange and interbank markets continued to trade in a smooth and orderly manner. The Sub-Committee noted that the Monetary Base increased to HK$2,072.94 billion at the end of the review period. In accordance with the Currency Board principles, all changes in the Monetary Base had been fully matched by changes in foreign reserves.

Macroeconomic Overview and Risk Assessment

Regarding Monitoring of Risks and Vulnerabilities, the Sub-Committee noted that in the US, the economy had sustained its growth momentum, supported by robust artificial intelligence ("A.I.") capital expenditure and resilient consumption. However, the energy-related inflation driven by the prolonged Middle East conflict, coupled with a stronger-than-expected labour market, had reignited concerns about potential Federal Reserve rate hikes. Meanwhile, growing fiscal sustainability concerns had led to a surge in long-end yields, adding further pressure on the fiscal position down the road. In Asia-Pacific, regional economies showed solid growth in Q1 despite the Middle East conflict, partly due to robust A.I.-driven exports. Yet, the energy shock had boosted regional inflation, which together with the downward pressures on some regional currencies, prompted several regional central banks to raise their policy rates significantly. In the Chinese Mainland, despite strong A.I.-driven external trade, overall economic growth moderated and key domestic activities missed expectations in April and May. The housing market remained generally soft, but top-tier cities performed relatively better. Although producer price inflation rose notably amid the global energy shocks, consumer price inflation remained subdued. Overall, risks to Q2 economic growth were tilted to the downside. In Hong Kong, economic growth accelerated in Q1, driven by broad-based strengthening in both domestic and external demand, with the momentum continuing into Q2. Inflation picked up but stayed in check, while the labour market remained broadly stable. Meanwhile, the housing market maintained its upward momentum, supported by positive market sentiment. The commercial real estate markets remained under pressure, though there were some signs of improvement in the Grade A offices in prime districts. Looking ahead, the economy was expected to remain resilient, although the outlook remained subject to downside risks stemming from the Middle East conflict, the sustainability of the A.I. investment boom, evolving global trade policies and the US policy rate path.

Regulatory and Market Infrastructure Updates

The Sub-Committee noted a paper that examined how Fast Interface for New Issuance ("FINI") helped reduce IPO-related interbank fund transfers and moderate short-term HIBOR fluctuations.