There is nothing like a big drop in interest rates to liberate an economy struggling from negative household equity and anaemic consumption demand. The United States Federal Reserve was assuredly not thinking of Hong Kong when it cut its key lending rate by half a percentage point on Wednesday, but it did the SAR a huge favour.
The price of money is the most crucial variable in any market economy. It is the base number that dictates all investment, saving and consumption decisions. For the past three years SAR money has been expensive causing consumers to leave it in the bank and companies to defer investment.
The pegged exchange means SAR interest rates must follow changes in US rates. The problem was that the US economy got too hot just as ours entered a mini ice age. Hong Kong needed rising rates over the past two years like a hole in the head, but had no choice but to follow.
Persistent deflation meant 'real' SAR interest rates have been above 10 per cent for much of the past three years. Few advanced economies can take such a pummelling for long and it reflects Hong Kong's strength that a financial crisis did not turn into a general banking crisis.
In short, the system held together. Unlike other Asian countries, Hong Kong stuck by the rules of its chosen macro-economic strategy. Cheap money in the mid-1990s, with a perverse restricted land sale policy, caused a huge boom that was at least allowed to deflate naturally.
This will be cold comfort for those who suffered but it does lay the ground for a sustainable recovery. As such, Hong Kong looks more like Britain in 1992 than Korea, Thailand or Japan after their collapse.
The risk is that the Fed's cut presages a US recession with the risk of rising trade protectionism and international financial instability.