The Hong Kong Monetary Authority held its base rate steady at 5.5% on Thursday after the US Federal Reserve paused its interest rate hiking cycle for the first time in 15 months.
The HKMA moves in lockstep with the Fed, given the local currency’s peg to the US dollar.
Now attention will turn to Hong Kong banks — including HSBC Holdings Plc and Standard Chartered Plc — and whether they will maintain their best lending rates.
The pause likely gives them breathing room: Last month, the city’s biggest banks raised their main lending rates for the first time in 2023 as liquidity shrank in the financial hub.
They had resisted boosting those rates after two earlier HKMA hikes this year, though did so three times in 2022.
The cost of interbank borrowing in Hong Kong remains elevated. One-month Hibor was last at 4.59%, more than double its 2.1% low in February. It’s still below the US equivalent, which is at 5.24%.
Rising rates have curbed depreciation pressure on the local currency, thereby limiting the need for further intervention by the HKMA. The Hong Kong dollar hasn’t traded at the weak end of its trading band with the greenback since early May.
Intervention drains liquidity from the financial system because the central bank buys Hong Kong dollars from banks, which forces local interest rates up.
The pause in rate hikes comes as the local economy is recovering, having emerged from recession as the opening of city borders revived spending. Economists estimate gross domestic product growth to accelerate to 4.6% for all of 2023.
--With assistance from Richard Frost.
