With the Aggregate Balance gradually returning to more normal levels, the relatively easy monetary conditions which have generally prevailed since September 2003, will eventually end, the Exchange Fund Advisory Committee Currency Board Sub-committee says.

The committee said the Hong Kong dollar exchange rate had stayed very close to the linked rate throughout the reporting period (December 23 to January 27) and that the Convertibility Undertaking had been triggered on several occasions.

With the outflow of funds, the Aggregate Balance had declined during the period and has continued to fall since to around $8 billion.

Members noted the US economy has continued to show solid growth. Although Europe and Japan performed poorly in the last quarter of 2004, forward-looking indicators suggest improvements this year.

The Mainland situation has been less clear, as the different timing of Lunar New Year has complicated data reading. Growth momentum appeared to be strong, though inflation had continued to fall.

In Hong Kong, the indicators point to slower, though still solid growth. Members noted the main risks continue to be associated with US dollar and US interest rate movements, high oil prices, and the Mainland's macroeconomic and financial conditions.