Beware volatility, warns HKMA chief Norman Chan, as Hong Kong leaves interest rate unchanged in lockstep with US Fed

Hongkongers should ‘stay vigilant in managing the potential risks arising from market volatilities’, said the head of the city’s de facto central bank

With growth dampened by the trade war, the US Fed has signalled it is reversing course on the rising interest rate cycle that began in December 2015

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Norman Chan, chief executive of the HKMA, said the ‘direction of fund flows has become more uncertain’ in view of the apparent change in the Fed’s monetary policy. Photo: K. Y. Cheng

Published: 12:57pm, 20 Jun 2019Updated: 11:31pm, 20 Jun 2019

Hong Kong’s de facto cental bank has reiterated its warning for borrowers and investors to beware of volatile market changes, as it kept the city’s base interest rate unchanged in lockstep with the US Federal Reserve’s monetary policy overnight.

“Future direction of fund flows has become more uncertain in view of the increased uncertainties in the Fed’s monetary policy direction. The public should stay vigilant in managing the potential risks arising from market volatilities,” said Norman Chan Tak-lam, chief executive of the Hong Kong Monetary Authority (HKMA), in an e-mailed statement.

Hong Kong manages its monetary policy in sync with the US Fed to maintain the stability of the Hong Kong dollar, which has been pegged to the US currency since 1983. That means every interest rate increase or cut in the US is mirrored in Hong Kong.

The year-long US-China trade war is weighing on the world’s economic growth, with the International Monetary Fund (IMF) predicting China’s 2019 increase to slow to 6.2 per cent, while Hong Kong’s Trade Development Council expects the city’s exports to rise 2 per cent this year, down from an earlier forecast of 5 per cent.

Amid the slower growth, the US Fed has signalled that it is reversing course on the rising interest rate cycle that began in December 2015 with nine consecutive rate increases.