Alvin Lang
17 Aug 2024 04:03
The Hong Kong Monetary Authority (HKMA) recently discussed the stability of the Hong Kong dollar and economic challenges at a subcommittee meeting of its Monetary Policy Committee.
The Hong Kong Monetary Authority (HKMA) recently released the minutes of the Foreign Exchange Fund Advisory Committee Monetary Committee Subcommittee meeting held on 5 July 2024. According to the HKMA, the discussions focused on the stability of the Hong Kong dollar (HKD) and the broader economic situation.
Currency Committee Operations
During the review period from 25 April to 25 June 2024, the HKD traded within a narrow range of 7.7987 to 7.8294 against the US dollar (USD). The HKD exchange rate strengthened from late April to mid-May due to dividend-related funding demand and active stock market activity. It has remained broadly stable since then. The HKD interbank rate continued to follow the USD rate, influenced by local supply and demand dynamics. The total balance was stable at approximately HK$45 billion, and no conversion arrangements were triggered. No irregularities were reported in the use of the discount window, indicating smooth and orderly trading on the HKD exchange and interbank market.
The monetary base increased to HK$191.751 billion by the end of the review period. In accordance with the Monetary Board Principles, all changes in the monetary base were fully consistent with changes in foreign exchange reserves.
Risk and vulnerability monitoring
The subcommittee highlighted the asynchronous economic developments across advanced economies (AEs), noting that central bank policies differ in response to diverse growth and inflation trends. The US Federal Reserve maintained its stance in June amid persistent inflation and strong job growth, but several AE central banks have begun to cut rates. The Fed’s “higher long-term” forward guidance could continue to strengthen the USD and affect exchange rates in emerging market Asian economies. In addition, rising global interest rates could challenge asset valuations and credit quality in the private sector.
In mainland China, the economic recovery remained uneven, with strong foreign trade, weak domestic demand and sluggish property market activity. Market sentiment improved after the April Politburo meeting adopted a more supportive policy tone, including a pledge to reduce housing inventories. However, the outlook remains challenging due to complex geopolitical conditions.
Hong Kong’s economic activity expanded in the first quarter of 2024, supported by a significant increase in merchandise exports and the upturn in the global technology cycle. The domestic economy is expected to recover at a moderate pace in 2024, but it faces risks and uncertainties related to the US policy rate path, the global economic outlook, and geopolitical tensions. Despite brisk residential market transactions following the policy easing in late February, market sentiment turned cautious in May as new properties were released at competitive prices and uncertainty surrounding the US policy rate path grew again. The commercial real estate market, especially the office sector, remained subdued.
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