The Hong Kong Monetary Authority (HKMA) increased its base rate charged through the overnight discount window by 75 basis points on Thursday, bringing it to 4.25%. The HKMA told families to get ready for a time when commercial rates will be higher and to be careful with their money.
The largest commercial bank in the city, HSBC, increased its best lending rate by 25 basis points to 5.375% as of November 4 in response to the HKMA’s action. It comes after the bank’s first raise in four years, a 12.5 basis point increase in September.
Following the HKMA’s move, which came hours after the U.S. Federal Reserve announced a rate hike by the same margin, analysts anticipate that other banks will do the same. Hong Kong’s currency is tied to the dollar in a narrow band of 7.75 to 7.85 per dollar, therefore, the city’s monetary policy follows suit with that of the United States.
According to the HKMA, the Linked Exchange Rate System will continue to function effectively, and rate increases in the United States won’t have an impact on Hong Kong’s financial and monetary stability. The city’s financial and money markets will continue to run smoothly and in order.
If the United States keeps raising interest rates, the de facto central bank of the city says that the Hong Kong dollar interbank rates will go up even more.
Eddie Yue, chief executive of the HKMA, said on Thursday that the public “should be prepared for the commercial interest rates to rise higher, and carefully assess and manage the related risks when making property purchase, mortgage, or other borrowing decisions.”
The Federal Reserve raised interest rates again by three-quarters of a percentage point on Wednesday. The Fed said that future increases in borrowing costs are needed to fight inflation.
It did, however, show that the U.S. may be getting close to an inflection point for the fastest tightening of monetary policy in forty years.
Paul Chan, the financial secretary for Hong Kong, claimed that there is still a good probability that the Fed will keep raising interest rates, which, together with weak external demand, have hurt the city’s exports.
He also said that there was no reason to worry too much about how it would affect the real estate and financial markets in the city.
Chan told reporters on the sidelines of a conference, “The economic situation has been difficult, but if we’re able to handle COVID-19, if we’re able to maintain travel between Hong Kong and the rest of the globe, it will add fuel to our economic growth.”
According to preliminary government figures released this week, Hong Kong’s GDP declined for the third consecutive quarter during the months of July and September, declining 4.5% from the same time last year.
