In this Oct 24, 2008 photo, a pedestrian walks past the building housing Hong Kong Monetary Authority's office in Hong Kong. (TED ALJIBE / AFP)
HONG KONG – The Hong Kong Monetary Authority (HKMA) on Thursday raised its base rate charged through the overnight discount window by 75 basis points to 4.25 percent, hours after the US Federal Reserve delivered a rate hike of the same margin.
The city’s monetary policy moves in lock-step with Fed’s as the city's currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.
READ MORE: Fed hikes interest rates again, hints at smaller increases ahead
The Base Rate is the interest rate forming the foundation upon which the Discount Rates for repurchase transactions through the Discount Window are computed.
The public should be prepared for the commercial interest rates to rise further, and carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions.
Eddie Yue, Chief Executive, HKMA
Following the 75-basis point upward adjustment in the target range for the US federal funds rate on Wednesday, 50 basis points above the lower end of the prevailing target range for the US federal funds rate is 4.25 percent, while the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates is 2.73 percent, the HKMA said.
"The Base Rate is therefore set at 4.25 percent according to the pre-set formula,” said the HKMA – Hong Kong's de facto central bank – in a statement Thursday morning.
Pointing out that the US Fed has raised the federal funds target range six times consecutively by a total of 375 basis points since March, HKMA Chief Executive Eddie Yue said in a statement that Thursday’s 75-basis-point rate hike is generally in line with market expectations.
Reiterating that rate hikes in the US won’t affect the financial and monetary stability of Hong Kong, he said, “In fact, our monetary and financial markets continue to operate in a smooth and orderly manner.”
The market has sufficient understanding and operational experience of the Linked Exchange Rate System (LERS), and continues to have strong confidence in the system, he said.
“If the US continues to raise interest rates, it is expected that the Hong Kong dollar interbank rates will continue to rise.”
On the commercial interest rates of banks, many banks have already raised their saving and lending rates, including the prime rates and the interest rate cap for newly approved mortgage loans, he pointed out.
“The public should be prepared for the commercial interest rates to rise further, and carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions,” he said.
HSBC hikes lending rate
Following the HKMA move, HSBC Holdings said on Thursday it is raising its best lending rate in Hong Kong by 25 basis points to 5.375 percent with effect from Friday.
*With inputs from Reuters