Hong Kong Dollar Stability Amid Global Tariff Tensions: HKMA Report Insights

The Hong Kong Monetary Authority (HKMA) has released a report detailing the operations of the Currency Board from December 25, 2024, to April 16, 2025. This period saw the Hong Kong dollar (HKD) trading within a range of 7.7555 to 7.7927 against the US dollar (USD), as noted by the Exchange Fund Advisory Committee’s Currency Board Sub-Committee.

HKD Performance and Market Conditions

During the review period, the HKD exchange rate moderated in early January 2025, influenced by eased liquidity tightness and reactions to new US tariff announcements. However, it gained strength by mid-February, buoyed by the robust performance of local stock markets and net inflows from the Southbound Stock Connect. The HKD further strengthened in early April as risk-off sentiment prevailed due to additional US tariffs, leading to unwinding of long USD carry trades and continued southbound inflows.

Interbank rates in Hong Kong (HIBORs) mirrored USD rates, with short-tenor rates affected by local supply and demand dynamics. Short-term HIBORs saw a brief tightening near the year-end but softened as funding demands decreased. The Convertibility Undertakings remained untriggered, and the Aggregate Balance maintained stability at approximately HK$45 billion, indicating smooth and orderly trading in HKD exchange and interbank markets.

Monetary Base Developments

The Monetary Base expanded to HK$1,980.99 billion by the end of the review period, with changes fully matched by adjustments in foreign reserves, adhering to Currency Board principles.

Global and Mainland Economic Outlook

The Sub-Committee reported intensified downside growth risks globally, following US tariffs that surpassed market expectations, causing financial markets to fluctuate yet operate without widespread stress. Although the delay in tariff implementation provided temporary relief, the potential future imposition remains a significant growth challenge.

In Mainland China, the economy showed signs of recovery with improved equity market sentiment and pro-growth signals from authorities, especially during the March Two Sessions. However, the economic outlook from April faced external pressures due to US tariffs, prompting an increased focus on consumption support.

Hong Kong’s Economic Resilience

Hong Kong’s growth outlook encountered heightened risks due to US tariffs, but factors like Mainland China’s pro-growth initiatives, anticipated US rate cuts, and recovering inbound tourism may mitigate impacts. The housing market saw increased activity in March following adjustments in stamp duties for lower-value properties, although global market volatility tempered sentiment in April. The commercial real estate sector, particularly offices, remained subdued.

Discount Window Usage and Stigma

The Sub-Committee reviewed a paper on the HKMA’s Discount Window usage and associated stigma. Findings indicated increased usage and reduced stigma in the current liquidity-tight environment compared to 2018-2020. This shift aligns with HKMA’s efforts to communicate with banks to alleviate stigma concerns.

For more detailed information, the full report is available on the Hong Kong Monetary Authority website.

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