Hong Kong Monetary Authority Cuts Base Rate

HONG KONG (Reuters) – The Hong Kong Monetary Authority (HKMA) on Thursday cut its base rate charged via the overnight discount window by 50 basis points to 5.25%, tracking a move by the U.S. Federal Reserve.

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.

HKMA stated that the U.S. interest rate cut will positively impact the economy of the Asia financial center and provide some room for easing local interest rates.

“In Hong Kong, our financial and monetary markets have continued to operate smoothly. Market liquidity remains stable with the Hong Kong dollar exchange rate hovering within the convertibility zone,” HKMA Acting Chief Executive Howard Lee told reporters.

“The rate cut cycle has just begun; interest rates will remain at relatively high levels in the foreseeable future. The public should carefully assess and manage interest rate risks when making property purchases, mortgages, or other lending decisions,” Lee added.

Major banks in Hong Kong followed suit, with HSBC cutting its best lending rate by 25 basis points to 5.625% effective Sept. 20. The Bank of China (Hong Kong) announced it would lower its prime rate to 5.625% from 5.875% effective Sept. 23.

“Even though uncertainty about future U.S. interest rates still exists, the direction is becoming clearer. Hong Kong interest rates are expected to ease accordingly, which will support economic growth,” said Hang Seng Bank’s chief economist Thomas Shik.

On Wednesday, the U.S. central bank began a series of anticipated interest rate cuts with a 50 basis-point reduction and policymakers expect another 50 basis points of cuts in 2024.

“Lower rates are intuitively positive for real estate but will have an uneven impact across Asia property markets and stocks,” Morgan Stanley noted, adding that falling mortgage rates would support Hong Kong more than Singapore.