Record of discussion of meeting of Exchange Fund Advisory Committee Currency Board Sub-Committee held on May 4

Record of discussion of meeting of Exchange Fund Advisory Committee Currency Board Sub-Committee held on May 4 
Report on Currency Board Operations (December 30, 2025 – April 22, 2026)
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     The Currency Board Sub-Committee (Sub-Committee) noted that the Hong Kong dollar (HKD) traded within a range of 7.7818 – 7.8387 against the US dollar (USD) during the review period. The HKD eased in early 2026 as HKD interbank rates (HIBORs) softened upon the fading of year-end funding demand, thereby increasing the incentive for carry trade activities. With uncertainty arising from the Middle East conflict in early March, investors unwound short HKD positions and drove the HKD stronger. Nonetheless, carry trade activities incentivised by HKD interest rates moving lower than their USD peers had brought the HKD weaker, and the thin liquidity due to global risk-off sentiment had exaggerated the spot price movements. Towards the quarter end, the HKD rebounded slightly due to the unwinding of short positions as short-dated interest rates firmed. While 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. Capital market-related HKD funding demand subsided amid the escalating geopolitical risk in the Middle East. HKD short-dated interest rates eased gradually in response, before firming again towards the quarter end and remaining firm thereafter. 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$2,061.37 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. ————————————————— 
     The Sub-Committee noted that in Hong Kong, the economy continued to expand in early 2026, supported by strong growth of merchandise exports, inbound tourism and retail sales. However, the energy shock triggered by the military conflict in the Middle East had shown early signs of impact on certain sectors. Meanwhile, the housing market maintained its upward momentum amid positive market sentiment, while the commercial real estate markets remained under pressure but with some signs of improvement in the Grade A offices in prime districts observed. Looking ahead, downside risks to the economic outlook included elevated uncertainty surrounding the ongoing geopolitical tensions, the sustainability of the AI investment boom, evolving global trade policies and the US policy rate path.
 
Review of External Demand for HKD Currency
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