Hong Kong central bank urges prudence amid global headwinds, cuts rates after Fed move

[HONG KONG] The head of Hong Kong's central bank called on the public to manage financial risks prudently on Thursday, as the local economy faces its first recession in a decade.

The Asian financial hub has been hit this year by both the US-China trade war and five months of often violent anti-government protests.

"For Hong Kong, as an open economy, the impact is relatively large. In addition, there are some local factors, (so) the downward pressure we are facing is very large," Eddie Yue, chief executive at the Hong Kong Monetary Authority (HKMA), told reporters.

The HKMA lowered its policy rate by 25 basis points to 2 per cent on Thursday, after the US Federal Reserve cut rates for a third time in a row on Wednesday. The city's policy moves lock-step with the United States as its currency is pegged to the greenback at 7.75-7.85 per dollar.

Hong Kong's commercial banks will decide whether to adjust their benchmark lending rates, which could impact mortgages in one of the world's least-affordable housing markets.

Mr Yue said interbank rates may not necessarily track the fall as they are also driven by local factors such as large listings in the stock market.

Reuters reported on Thursday that Chinese e-commerce giant Alibaba Group Holding Ltd is eyeing a listing up to US$15 billion in Hong Kong as early as November.

"However, the US rate cut does reflect the downward pressure on the global economy to which Hong Kong is not immune," said Mr Yue, who took office in early October.

Despite the social unrest, Mr Yue said there had been "no obvious outflows" from the Hong Kong banking system, adding that Hong Kong dollar deposits rose 0.6 per cent in September.

The city's embattled leader, Carrie Lam, said on Tuesday she expects the economy to contract for the full 2019 year, with the protests hampering business and a Sino-US trade war taking a toll on factory activity.

HKMA had earlier this month cut the amount of cash that banks must keep as reserves, releasing an extra HK$200 billion to HK$300 billion (S$34.74 billion) into the broader economy.

REUTERS