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The Hong Kong Monetary Authority raised its benchmark interest rate by 25 basis points, after the U.S. Federal Reserve did the same, saying it wants to maintain stability in the financial system amid heightened market volatility.
The base rate was increased to 0.75% from 0.5%, the HKMA said in a statement on its website. The rate moves in lockstep with the Fed's rate since the Hong Kong dollar is pegged to the U.S. currency.
HSBC Holdings Plc and Standard Chartered Plc both announced after the HKMA decision that they would not change their best lending rates, providing the economy some breathing room as it's throttled by its worst virus outbreak ever, which has prompted the government to tighten restrictions. The HKMA also said in a statement that past experience shows that Hong Kong dollar interbank rates may not necessarily rise in tandem with U.S. moves.
Economists have been steadily downgrading their growth forecasts for Hong Kong for the year as the pandemic takes its toll. Economic indicators such as retail sales and the purchasing managers' index have slumped, supply chains have been disrupted, and a much-anticipated reopening with mainland China has been delayed.
The monetary authority cautioned that the global outlook remains uncertain, which could yet slow the Fed's pace of rate hikes.
“The HKMA will continue to closely monitor market situations, with a view to maintaining stability in Hong Kong's financial and monetary systems,” Chief Executive Eddie Yue said in the statement.
In recent months, Financial Secretary Paul Chan has repeatedly reassured investors that the city is well positioned to manage a rate hike. Hong Kong banks remain well-capitalized with robust liquidity positions, he said in a blog post last month, adding changes in capital flows would not lead to an increase in interbank rates. The city's current account remains strong, Chan said.
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