Hong Kong Holds Steady: Base Rate Maintained at 4.75% After Three Cuts

The Hong Kong Monetary Authority (HKMA) has decided to keep the Base Rate unchanged at 4.75%, following three consecutive interest rate cuts. This decision aligns with the Linked Exchange Rate System, which pegs the Hong Kong dollar to the US dollar within a narrow band. The HKMA's move comes after the Federal Reserve (the Fed) cut the federal funds rate by 25 basis points to 4.5-4.75%.

The HKMA's decision to maintain the Base Rate at 4.75% is in line with the established mechanism that links Hong Kong's interest rates to the US federal funds rate. The HKMA has stated that the Fed's rate cut is expected to have a limited impact on Hong Kong's financial stability, as the Hong Kong dollar exchange rate remains stable, and the financial and monetary markets continue to operate in a smooth and orderly manner.

The HKMA's decision to maintain the Base Rate at 5% is in line with the Linked Exchange Rate System, which ensures that Hong Kong dollar interbank rates generally track the US dollar counterparts. This system contributes to a stable market liquidity condition and influences banks' deposit and lending rates. The rate-cut cycle in the US, which influences Hong Kong's interbank rates, can affect banks' deposit and lending rates, with lower interbank rates potentially leading to lower deposit and lending rates.

Investors should consider several factors when assessing the merit and extent of adjustments in these rates, such as funding supply and demand in the interbank market, the level of interbank rates, banks' funding cost structures, and seasonal effects. By considering these factors, investors can make more informed decisions when making property purchase, mortgage, or other borrowing decisions.

In summary, the HKMA's decision to maintain the Base Rate at 4.75% aligns with the Linked Exchange Rate System and the Fed's recent interest rate cuts. This decision is expected to have a limited impact on Hong Kong's financial stability, as the Hong Kong dollar exchange rate remains stable, and the financial and monetary markets continue to operate in a smooth and orderly manner. Investors should consider various factors when assessing the merit and extent of adjustments in interest rates to make informed decisions about property purchases, mortgages, and other borrowing.