Hong Kong’s monetary authorities are following the US Federal Reserve in keeping the base rate unchanged, with the latter acknowledging unusually high uncertainty due to the war in the Middle East.

In a notification issued on Thursday morning, the Hong Kong Monetary Authority (HKMA) maintained the city’s base rate at 4 percent.

The announcement came hours after an 11-1 decision of the Federal Open Market Committee of the Federal Reserve to keep its target rate in the range of 3.5 percent to 3.75 percent. The Fed projected higher inflation, steady unemployment and a single reduction in borrowing costs this year, a path that Chair Jerome Powell said was subject to unusually high uncertainty as policymakers take stock of the impact of the US and Israeli war with Iran.

"In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy," Powell said at a press conference. "The thing I really want to emphasize is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just don't know."

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Referring to the Fed decision, the HKMA said the policy decision is in line with market expectations.

“The ‘dot plot’ released following the meeting indicated that the Fed might cut rates by 25 basis points before year end. However, the market generally considers that the path of US monetary policy remains quite uncertain, while recent tensions in the Middle East region introduce greater uncertainty to oil prices as well as the outlook for US inflation,” reads the HKMA notification.

Under the Linked Exchange Rate System, Hong Kong dollar interbank rates generally track the US dollar counterparts with the city's currency pegged to the greenback in a tight range of 7.75-7.85 per dollar, while shorter-tenor interbank rates tend to be also influenced by the supply and demand of Hong Kong dollar funding in the local market such as seasonal factors and capital market activities.

Pointing out that Hong Kong's monetary and financial markets have continued to operate in an orderly manner, the HKMA said the future trend of US interest rates is quite uncertain, which may influence the interest rate environment in Hong Kong.

“The public should carefully manage interest rate risks when making decisions about property purchase, investment or borrowing,” it added.

In the latest rate cut, the HKMA lowered its base interest rate by 25 basis points to 4 percent on Dec 11 last year, shortly after Fed officials delivered a third consecutive interest-rate reduction and the final one for the year.

With inputs from agencies