Hong Kong Monetary Authority raises base rate 25 basis points to 4.25%

The Hong Kong Monetary Authority raised its base rate by 25 basis points to 4.25% with immediate effect on 17 September. The increase followed the Federal Reserve’s quarter-point move hours earlier. It was Hong Kong’s first base-rate increase since July 2023. The base rate applies to the overnight discount window under the city’s linked exchange-rate framework.

Hong Kong’s monetary policy generally follows the United States because the Hong Kong dollar trades within a band of HK$7.75 to HK$7.85 against the US dollar. The authority’s formula set the base rate 50 basis points above the lower end of the new US target range. The average of the five-day moving averages of the overnight and one-month Hong Kong interbank offered rates was 2.50%, below the resulting 4.25% base rate. The base rate was therefore set at 4.25% according to the pre-set formula.

COMMERCIAL BANKS HELD LENDING RATES

HSBC and Bank of China (Hong Kong) kept their best lending rates at 5.00%, while Standard Chartered retained its 5.25% prime rate. Hang Seng Bank, an HSBC subsidiary, also left its best lending rate unchanged at 5.00%. The decisions meant the official increase did not immediately produce equivalent changes in those retail lending benchmarks.

The HKMA said banks would consider factors including funding supply and demand, the level of interest rates and their own funding cost structures when setting rates. The one-month Hong Kong interbank offered rate stood at 2.95%, its highest in almost three months but still below comparable US rates.

RATE DIFFERENTIAL COULD PRESSURE CURRENCY

HKMA chief executive Eddie Yue said the wider interest-rate differential could encourage carry trades and push the Hong Kong dollar towards the weak side of its permitted band. The authority nevertheless said monetary and financial markets continued to operate in an orderly manner. It advised borrowers and savers to manage interest-rate risk because the future US rate path remained uncertain.

The Federal Reserve’s next scheduled policy meeting is on 27–28 October.