A rise in Mainland interest rates will further help guide the country's economy to a soft landing and be conducive to Hong Kong's monetary stability, the Exchange Fund Advisory Committee Sub-Committee on Currency Board Operations says.

In its record of discussion released today, the committee said while the likelihood of a sharp rise in US interest rates appears to have eased, high oil prices have continued to contribute to volatility in financial markets.

It noted the Hong Kong dollar has strengthened during the September 29 to October 21 period under review, following a weakened US dollar and renewed talk about the renminbi exchange rate regime.

Interbank interest rates fell markedly. The Aggregate Balance, having dipped to $3.23 billion near to the beginning of the period, closed at $4.81 billion. Members noted the Aggregate Balance continued to expand after the review period on the inflow of funds into the Hong Kong dollar, and was around $12.5 billion.

Members have considered a paper that presents a graphical framework for monitoring property market conditions and vulnerabilities in Hong Kong. It presented the evolution of five key indicators (property prices, property transaction volumes, new mortgages, the income-gearing ratio, and the buy-rent gap, which measures the funding cost of buying a property relative to its rental yield) in the form of a pentagon, to compare the current situation with the boom and bust cycles of the past decade or so.

The analysis using this framework suggested the risk of a property bubble is currently low, despite the sharp rebound in prices since the summer of 2003.