HKMA takes a second break from raising its base rate after US Fed’s ‘hawkish skip’, giving Hong Kong’s businesses and borrowers a breather

The base rate was maintained at 5.75 per cent, according to the Hong Kong Monetary Authority (HKMA)

HSBC, Hang Seng Bank, Bank of China (Hong Kong) and Bank of East Asia kept their prime rates unchanged as they follow the de facto central bank’s move

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Shoppers took a breather in a simulated minibus at a shopping mall in Mong Kok on 1 August 2023. Photo: Jelly Tse

Published: 7:02am, 21 Sep 2023Updated: 4:27pm, 21 Sep 2023

Hong Kong kept its base rate unchanged after the US Federal Reserve skipped its monetary tightening cycle for the second time this year, giving the city’s businesses and borrowers breathing room amid a struggling economy.

The base rate was kept at 5.75 per cent, the Hong Kong Monetary Authority (HKMA) said before financial markets opened. Hours earlier, the Fed maintained its target rate unchanged at between 5.25 per cent and 5.5 per cent, taking its second recess since the cost of money began rising in March 2022.

The Fed is “prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective,” said its chairman Jerome Powell.

The so-called “hawkish skip” by the world’s most powerful central bank was expected with a 99-per cent probability, based on the prices of Fed Funds futures on the CME Group’s Chicago exchange, something that “has been the market expectation and a foregone conclusion for some time,” said T. Rowe Price’s chief US economist Blerina Uruci, in a September 19 note.

US Federal Reserve Chairman Jerome Powell during a news conference after the release of the Fed policy decision to keep interest rates unchanged, at the Federal Reserve in Washington DC on June 14, 2023. Photo Reuters.

Hong Kong’s key Hang Seng Index fell 1.3 per cent to 17,655 after the interest rate decision, tracking Wall Street’s overnight retreat, where the S&P 500 dropped 1 per cent and Nasdaq fell 1.5 per cent.