Hong Kong Monetary Authority raises rate for first time in three years

[HONG KONG] The Hong Kong Monetary Authority (HKMA) raised its base interest rate charged via the overnight discount window by 25 basis points to 4.25 per cent on Thursday (Sep 17), tracking a hike by the US Federal Reserve.

Hong Kong’s monetary policy moves in lockstep with the US, as the city’s currency is pegged to the greenback in a tight range of 7.75 to 7.85 per US dollar. It was HKMA’s first rate hike since July 2023.

However, HSBC and Standard Chartered said that they would keep their best lending rates in Hong Kong unchanged, at 5 per cent and 5.25 per cent, respectively.

Bank of China (Hong Kong) said that its Hong Kong dollar prime rate remained unchanged at 5 per cent.

All three lenders kept their Hong Kong dollar savings deposit rates unchanged. The banks did not provide reasons for their moves.

Hong Kong’s de facto central bank said that the Fed’s decision to raise interest rates was in line with market expectations, and reflected the committee’s concerns about the outlook for inflation.

“The Hong Kong dollar and US dollar interest rate differential will widen, and carry trade activities may cause the Hong Kong dollar to ease towards the weak side of the band,” HKMA chief executive Eddie Yue told reporters.

The Fed raised interest rates on Wednesday for the first time in three years, and flagged more hikes in the coming months.

US interest rate adjustments are subject to considerable uncertainty and may influence the interest rate environment in Hong Kong, and the public should carefully manage interest rate risks when making financial decisions, Yue added.

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Hong Kong’s monetary and financial markets have continued to operate in an orderly manner, and banks will take into consideration factors including funding supply and demand, the level of interest rates, and their own funding cost structures when making decisions on interest rates, HKMA said. REUTERS