Hong Kong central bank cuts interest rate, tracking Fed; banks follow

Hong Kong’s central bank on Thursday (Sep 18) lowered its base interest rate by 25 basis points to 4.5 per cent, tracking a cut by the US Federal Reserve.

It was the first easing by the Hong Kong Monetary Authority (HKMA) since a 25 basis point cut last December. The rate is charged via the overnight discount window.

Major Hong Kong banks partially followed, with HSBC lowering its Hong Kong dollar best lending rate by 12.5 bps to 5.125 per cent effective Sep 19, and Bank of China (Hong Kong) also reducing its Hong Kong dollar prime rate to 5.125 per cent from 5.25 per cent.

Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback in a tight range of 7.75 to 7.85 per US dollar.

“We believe the adjustments announced today are appropriate considering the US rates decision and the local market conditions,” Luanne Lim, chief executive Officer, Hong Kong, HSBC, said.

“We will continue to monitor the external environment and local economic outlook, and adopt an agile approach when we evaluate future rate decisions,” Lim added.

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HKMA chief executive Eddie Yue said the reduction will have a positive impact on the city’s property market and economy, noting that financial and monetary markets continue to operate in a smooth and orderly manner.

The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday and indicated it will steadily lower borrowing costs for the rest of this year.

Yue said the Fed might cut rates further by 50 bps before the end of the year, though he added that “the extent and pace of future US interest rate cuts are subject to uncertainty”. REUTERS