TMTPost -- The central banking institution of China』s Hong Kong Special Administrative Region follows suit right after the U.S. Federal Reserve began to easy policy.
Credit：Xinhua News Agency
The Hong Kong Monetary Authority (HKMA) announced Thursday its Base Rate has been lowered to 5.25%, down from the previous 5.75%, the highest level since 2007. The Base Rate is the interest rate forming the foundation upon which the Discount Rates for repurchase transactions through the Discount Window are computed.The rate is currently set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is the higher.
HKMA said the 50-basic point (BP) reduction of the Basie Rate was set as the U.S. Federal Reserve trimmed the target range for the U.S. federal funds rate by 50 BPs, Wednesday, U.S. Time. The U.S. interest rate cut will have a positive impact on the economy of Hong Kong and will provide some room for easing of local interest rates, HKMA said.
"In Hong Kong, our financial and monetary markets have continued to operate in a smooth and orderly manner. Market liquidity condition has remained stable with the Hong Kong dollar exchange rate hovering within the convertibility zone," HKMA Acting Chief Executive Howard Lee told reporters.
「When [the commercial banks of] Hong Kong do start to cut the [prime] rate, it will be positive for local businesses, and be supportive to our capital markets」, Paul Chan Mo-po, the Financial Secretary of Hong Kong, said. 「The rate cut overnight in the US has started a new round of rate-cut cycle.」
"The rate cut cycle has just begun, interest rates will remain at relatively high level in the foreseable future. The public should carefully access and continue to manage the interest rate risk when making property purchase, mortgage or other lending decision," Lee added.
Hong Kong』s financial officials cautioned the local authorities may not track the move of the U.S. central bank in the future. Multiple factors affect the pace of cuts: US inflation, changes in market conditions, labour markets and how America』s economy reacts to the rate cuts, Lee noted. 「The market is likely to remain very sensitive to economic data and political and economic risk, [so] investors should stay alert to the risk of global financial market volatility」, Lee said.
It is expected that the direction trend of Hong Kong's interest rate will be close to that of the United States, but the pace and extent of the Asian financial hub』s interest rate adjustment will depend not only on factors in the U.S., but also on local capital flows and market conditions, said Chan. The pace of cuts in the prime rate used by the city』s commercial banks 「may be slower」 than those in the US because the adjustments 「are based on fund flows and other factors,」 said Chan.
The U.S. Federal Reserve said its Federal Open Market Committee (FOMC) decided to lower its key overnight borrowing rate by 50 BPs, or a half percentage point, to the range of 4.75%-5%, following a two-day meeting. That is the first interest rate cut in four years and the most aggressive ease in more than a decade. The last time the FOMC cut by 50 BPs was in 2008 during the global financial crisis. Besides the reduction, the FOMC indicated through its 「dot plot」 the equivalent of 50 more BPs of cuts by the end of the year.
However, the Federal Chair Jerome Powell cautioned against assuming large cuts will continue at a news conference following the decision. 「I do not think that anyone should look at this and say, Oh, this is the new pace,」 Powell replied to a question about the pace of interest rate cut in the future. 「 There's no sense that the committee feels it's in a rush to do this,」 Powell said when asked about how he expects the pace like the initial cut to be running every other meeting. He told reporters that the U.S. Federal Reserve is going to be making decisions, meeting by meeting, based on the incoming data, the evolving outlook, the balance of risks.