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Published: 09:25, March 23, 2023 | Updated: 12:26, March 27, 2023
HKMA raises base rate after Fed hike
By Wang Zhan
Published:09:25, March 23, 2023 Updated:12:26, March 27, 2023 By Wang Zhan

In this Oct 24, 2008 photo, a pedestrian walks past the building housing Hong Kong Monetary Authority's office in Hong Kong. (PHOTO / AFP)

HONG KONG - The Hong Kong Monetary Authority on Thursday raised its base rate charged through the overnight discount window by 25 basis points to 5.25 percent, hours after the US Federal Reserve delivered a rate rise of the same margin.

Hong Kong's monetary policy moves in lock-step with the US as the special administrative region's currency is pegged to the greenback in a tight range of 7.75 to 7.85 per dollar.

The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point but indicated it was on the verge of pausing further increases in borrowing costs after the collapse this month of two US banks

The base rate is the is the interest rate forming the foundation upon which the discount rate for repurchase transactions through the discount window are computed. 

“The base rate is currently set at 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,” the HKMA said in a statement issued on Thursday morning.

ALSO READ: Experts: HK market to feel relieved from dovish Fed decision

The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point but indicated it was on the verge of pausing further increases in borrowing costs after the collapse this month of two US banks.

The Federal Open Market Committee policy statement also said the US banking system was "sound and resilient".

"The Fed's rate-hike decision is consistent with market expectation, but there will continue to be considerable uncertainties on the interest rate path in the US," HKMA said in a statement.

HSBC Holdings said it was leaving its best lending rate in Hong Kong unchanged at 5.625 percent.

The HKMA said: "Individual banks in the US had exhibited financial health and liquidity problems recently, which might result in credit tightening."

"It is too soon to assess how much this will further affect economic activities and influence monetary policy."

READ MORE: HK on watch for any 'spillover' from US regional banks

The financial and monetary markets of Hong Kong continued to operate in a smooth and orderly manner, despite the volatility of overseas markets, and Hong Kong dollar interbank rates might remain at elevated levels for some time, the HKMA added.

Hong Kong overnight interbank offer eased further to 1.94905 percent on Thursday, down 44.9 basis points from Wednesday. On Tuesday the benchmark had spiked to a four-month high of 4.14286 percent, pointing to a cash squeeze caused by uncertainty ahead of the Fed's policy meeting outcome and by seasonal demand for Hong Kong dollar funding.

The Hong Kong dollar weakened to 7.8490 per US dollar on Thursday, extending a decline seen on Wednesday. It was down from a one-month high of 7.8355 reached on Tuesday.


With Reuters inputs


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