Hong Kong’s low-interest rate regime will help the city’s stricken economy get back on its feet quickly

HKMA is likely to keep its interest rate unchanged after the Federal Reserve indicated that its rates will remain close to zero until the end of 2022

A total of HK$48.1 billion has flowed in Hong Kong market since April, forcing the HKMA to intervene 16 times in the market to defend the peg

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The Hong Kong dollar has repeatedly tested the upper end of its peg with the US dollar this year. Photo: Reuters

Published: 2:10pm, 11 Jun 2020Updated: 12:06am, 12 Jun 2020

The Hong Kong Monetary Authority will follow the US Federal Reserve in keeping interest rates close to zero through 2022 to support the battered economy, a strategy that is set to attract fund inflows into the city despite concerns surrounding the proposed national security law and the coronavirus pandemic, according to analysts.

The de facto central bank left the base rate unchanged at 0.5 per cent on Thursday morning, just hours after the US Federal Open Market Committee decided to keep the Fed funds rate at zero to 0.25 per cent and indicated no change through 2022.

Under the peg-linked system, Hong Kong will follow in lockstep with the interest-rate policy of the US, which means interest rates in the city will stay close to zero through 2022, said Bruce Yam, currency strategist at Everbright Sun Hung Kai.

“[This means] low-funding cost for individuals and corporates, [which] will help reboot the economy,” Yam added.

A low-interest rate regime is very much needed for businesses in the city, as the economy contracted by 8.9 per cent year on year in the first quarter, the worst since records started in 1974. To help businesses tide over the crisis the HKMA has requested banks to give over 30,000 Hong Kong companies a six-month repayment holiday on HK$380 billion (US$49 billion) worth of loans.