Hong Kong cuts interest rate after US Fed’s surprise move to bolster sagging economy as coronavirus outbreak spreads worldwide

US Federal Reserve cut interest rate by 50 basis points, the first emergency reduction since the 2008 global financial crisis

The Hong Kong Monetary Authority, which runs its monetary policy in lockstep with US policies, followed with a 50 basis point cut

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Eddie Yue Wai-man speaks to the press on his first day as chief executive of the Hong Kong Monetary Authority on October 2, 2019. Photo: Xiaomei Chen

Published: 8:41am, 4 Mar 2020Updated: 5:33pm, 4 Mar 2020

Hong Kong’s monetary authority reduced its base lending rate by half a percentage point after the US Federal Reserve conducted an emergency cut for the first time since the global financial crisis to counter risks stoked by the global coronavirus outbreak.

The Fed trimmed its key rate by 50 basis overnight, two weeks before its scheduled meeting on March 17 and 18, as Chairman Jerome Powell said he “saw a risk to the economy, and chose to act.” The move was the first inter-meeting rate action, as well as the biggest cut in a single fell swoop, since the collapse of Lehman Brothers Holdings in 2008 roiled global financial markets.

Hong Kong’s de facto central bank, which runs its monetary policy in lockstep with US policies to maintain the local currency’s peg to the US dollar, followed with a 50 basis point cut to 1.5 per cent, effective immediately, the HKMA said in a statement posted on its website.

A cut in the base lending helps reduce the cost of money, aiding Hong Kong’s borrowers in weathering a retail and consumption slump that last year drove the local economy into its first technical recession in a decade. The HKMA cut the official lending rate three times in 2019 by a combined 75 basis points, following nine consecutive increases totalling 225 basis points between 2015 and 2018.

Federal Reserve Chair Jerome Powell announces a half percentage point interest rate cut during a speech on March 3 in Washington, DC. Photo: AFP

The coronavirus, which causes the deadly Covid-19 disease, has infected more than 92,000 people and killed at least 3,000, mostly in mainland China. There were 100 infections and two deaths in Hong Kong so far. Recent new cases have surged across Europe, Americas and the Middle East, triggering a global market sell-off unseen since the 2008 crisis.