Federal Reserve

Money gets bit cheaper

PUBLISHED : Friday, 29 June, 2001, 12:00am
UPDATED : Friday, 29 June, 2001, 12:00am

The SAR's banks were yesterday given an immediate 25 basis point cut on the rates at which they may borrow overnight money from the Hong Kong Monetary Authority.

That cheaper source of funds - or the HKMA 'base rate' - is likely to find its way immediately into a new round of interest rate adjustments for bank customers today.

The Hong Kong Association of Banks is expected to announce a quarter of a percentage point cut to savings rates (from 2.25 per cent to 2 per cent) at its regular Friday meeting today.

At the same time, individual banks are expected to announce cuts in their prime lending rates of the same magnitude - from 7 per cent to 6.75 per cent.

The trigger for the adjustments was the overnight 25 basis point cut in the United States Federal Reserve funds rate, from 4 per cent to 3.75 per cent.

The base rate in Hong Kong is the interest rate at which the HKMA provides overnight liquidity to the banking system through the discount window.

The base rate is set at either 150 basis points above the prevailing US Fed Funds rate, or the average of the five-day moving averages on overnight and one-month Hong Kong interbank offered rates, whichever is higher.

With these local money market rates below 4 per cent, and in the wake of the US Fed's move, the base rate was cut to 5.25 per cent yesterday.