Advertisement
Hong Kong raises base rate to 2.75 per cent in lockstep with US Fed’s 75-basis point hike
- The HKMA’s chief executive Eddie Yue Wai-man warned of more interest rate increases in the coming months, urging borrowers to be aware of risks
- Hong Kong’s monetary policy has been run in lockstep with the Fed ever since the local currency was pegged to the US dollar in 1983
Reading Time:5 minutes
Why you can trust SCMP
8
Hong Kong’s monetary authority raised the city’s borrowing cost by 75 basis points for the second consecutive month, in lockstep with an increase of the same amount overnight by the US Federal Reserve.
Advertisement
Hong Kong’s base rate will rise to 2.75 per cent effective immediately, according to a statement by the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank. That’s the highest level since 2019, which was itself an 11-year high.
Hong Kong’s rate increase, conducted in concert with US monetary policy to preserve the city’s currency peg to the US dollar since 1983, comes at an inopportune moment for the local economy. Unlike the US economy’s runaway inflation – prices rose by 9.1 per cent in June, the most in 40 years – Hong Kong is on the brink of a recession, weighed down by social distancing rules to combat the Covid-19 pandemic.
Months of social distancing rules and disrupted businesses have caused the city’s economy to shrink by 4 per cent in the first quarter. Analysts expect gross domestic product to contract by as much as 1.6 per cent in the second quarter.
Full-year growth forecast, estimated at between 2 per cent and 3.5 per cent in 2022, may have to be cut, Financial Secretary Paul Chan Mo-po said this week in an interview with South China Morning Post.
Advertisement
Advertisement