HONG KONG – The Hong Kong Monetary Authority on Thursday kept its base rate unchanged in lockstep with the US Federal Reserve, which held interest rates steady considering rising risks to the US economy.

After its two-day meeting, the Fed’s Federal Open Market Committee announced its decision earlier in the day to keep the target range for the federal funds rate unchanged at 4.25-4.5 percent, with Fed Chair Jerome Powell pointing out that it is not clear if the economy will continue its steady pace of growth, or wilt under mounting uncertainty and a possible coming spike in inflation.

Responding to the Fed move, the HKMA decided to maintain its base rate at 4.75 percent, saying that the Fed policy decision is in line with market expectations.

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 7.75-7.85 per dollar.

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“The series of tariff measures recently announced by the US authorities have further increased uncertainty about US inflation and economic growth outlook.  The Fed therefore is adopting a patient approach to its monetary policy,” the HKMA said in its announcement on Thursday.

Pointing out that Hong Kong’s monetary and financial markets have continued to operate in an orderly manner, the HKMA said the recent strengthening of the Hong Kong dollar, mainly driven by equity-related demands and the appreciation of regional currencies against the US dollar, has triggered the strong-side convertibility undertaking of HK$7.75 to $1 under the Linked Exchange Rate System (LERS).

The HKMA sold Hong Kong dollars to the market in exchange for US dollars in accordance with the LERS, and the aggregate balance increased accordingly, leading to more ample Hong Kong dollar liquidity and lower interbank interest rates, it added.  

In four intervention operations since Friday, the HKMA stepped into the market to sell HK$129.4 billion ($16.7 billion) worth of local currency against the greenback. 

On Tuesday alone, it bought HK$60.5 billion ($7.75 billion), the largest single-day capital injection up-to-date, against the Hong Kong dollar to stop the local currency from strengthening and breaking its peg to the US dollar.

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“Going forward, Hong Kong dollar interbank rates will be affected by the supply and demand of Hong Kong dollar as well as the Hong Kong dollar liquidity condition and other factors, especially in the shorter tenors,” reads the HKMA statement.

Cautioning that the markets are expected to focus on developments relating to US tariff measures and the US interest rate path, both of which are subject to considerable uncertainty, the HKMA said global financial markets would inevitably be affected and exhibit volatility.

It advised members of the public to carefully assess and manage risks when making property purchase, investment or borrowing decisions.