HKMA Reports on Currency Board Operations Amidst Global Financial Volatility

The Hong Kong Monetary Authority (HKMA) has released insights into the performance of the Hong Kong dollar (HKD) and its economic environment during recent months, as discussed in the Exchange Fund Advisory Committee Currency Board Sub-Committee meeting on July 2, 2025. According to the HKMA, the HKD traded within a range of 7.7500 to 7.8499 against the US dollar (USD) from April 17 to June 20, 2025, benefiting from active capital market activities and significant inflows through the Southbound Stock Connect.

Currency Board Operations

During this period, the HKD’s exchange rate firmed in late April, and in early May, the strong-side Convertibility Undertaking (CU) was triggered four times due to the sharp appreciation of Asian currencies and equity-related demand. This led to the HKMA selling HK$129.40 billion under the strong-side CU, which increased the Aggregate Balance to around HK$174 billion. While the HKD interbank rates (HIBORs) generally followed their USD counterparts, they were also affected by the local supply and demand dynamics, causing a softening of HIBORs due to an abundant supply of HKD funding. This situation encouraged carry trade activities, which subsequently put downward pressure on the HKD, bringing it near the weak-side CU by June. Despite these fluctuations, the HKD exchange and interbank markets remained stable and orderly.

Monetary Base and Economic Risks

The HKMA reported an increase in the Monetary Base to HK$2,125.03 billion by the end of the review period, with all changes matched by foreign reserves as per Currency Board principles. The Sub-Committee also noted the impact of US tariff announcements on global financial markets, which led to increased long-term government bond yields and potential pressure on Asian economies’ growth and financial markets.

In Mainland China, exports maintained solid growth despite US tariffs, with the Chinese government implementing financial policies to support economic growth. In Hong Kong, while Q1 economic growth exceeded expectations, uncertainties from tariffs continued to pose challenges. However, supportive measures and decreasing HKD interest rates helped mitigate some negative impacts, with the housing market showing signs of stabilization and steady transaction volumes.

Interbank Liquidity

The Sub-Committee examined a paper on the relationship between HKD interbank liquidity and interbank interest rates, highlighting the intricacies of maintaining a balanced financial system amidst fluctuating market conditions.

For more detailed information, refer to the official source on the Hong Kong Monetary Authority website.

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