Hong Kong follows US Fed in cutting interest rate for the first time since 2008 as trade war weighs down on world economy
- Hong Kong Monetary Authority has cut the base lending rate by 25 basis points to 2.5 per cent, following a widely expected move of the same amount by the US Federal Reserve
- Commercial banks are expected to hold their rates steady, with HSBC the first to announce that it is keeping its best lending rate unchanged. The bank cut its rate for US dollar savings by 10 basis points
The city’s de facto central bank reduced the base rate by 25 basis points to 2.5 per cent effective August 1, in lockstep with a widely expected cut of the same amount by the US Federal Reserve, the first such move since the 2008 Global Financial Crisis.
“The US rate cut shows that the Federal Reserve has reversed its interest rate normalisation process that started in December 2015,” the Hong Kong Monetary Authority’s Chief Executive Norman Chan Tak-lam said at a media briefing. “If the US continues to gradually reduce the interest rate in future, it will be positive for the global currency markets.”
The rate cut is a much-needed spur to kick-start Hong Kong’s economy, which contracted 0.3 per cent in the three months ended June from the first quarter, while the annual growth pace was stuck at 0.6 per cent from a year ago. The city’s economy, a vital transshipment and re-export hub for the gigantic economic powerhouse of mainland China with the rest of the world, had been squeezed by the year-long US-China trade war as the conflict kicked into high gear in early May.
“A lower interest rate will definitely be positive for the economy of Hong Kong, as well as the US, as it helps ease the burden for borrowers,” said Sonny Hsu, vice-president and senior credit officer of Moody's Investors Service, adding that the financial markets are expecting three rate cuts in 2019 for a total of 75 basis points.