Hong Kong’s de facto central bank cut its base interest rate for the first time in four years in lockstep with the US Federal Reserve, kicking off a cycle of reductions that would help businesses and homeowners to reboot.
The city’s base rate was cut by half a percentage point to 5.25 per cent, according to the Hong Kong Monetary Authority (HKMA). Hours earlier, the Fed slashed its target rate by an unexpectedly aggressive half-point to a range of 4.75 per cent to 5 per cent during its fifth Federal Open Market Committee (FOMC) meeting this year.
The Fed’s cut was widely expected, although traders were split about whether the reduction would be by a quarter-point or a half-point, according to data compiled by CME Group, based on Fed fund futures contracts.
“The “dot plot” indicated that the Fed might continue to cut rates by a total of 50 basis points before year end, followed by a total of 100 basis points next year,” the HKMA’s acting chief executive Howard Lee said after the rate cut, reiterating his advice for the public to remain vigilant of high borrowing costs. “The pace of future rate cuts remains uncertain because of multiple factors, such as whether inflation would stay at low levels, changes in labour market condition, and how the economy would react to the rate cuts.”