HKMA Lifts Base Rate to 4.25% After Fed Hike, First Move Since July 2023

The Hong Kong Monetary Authority raised its base interest rate by 25 basis points to 4.25% on Thursday, matching an overnight increase by the US Federal Reserve and marking its first rate hike since July 2023.

The move reflects Hong Kong's currency peg, which keeps the local dollar trading within a tight band of 7.75 to 7.85 against the US dollar and requires the city's monetary policy to move in step with Washington.

The Fed raised rates on Wednesday for the first time in three years and signalled further increases in the months ahead. The HKMA said the decision was in line with market expectations and reflected the committee's concerns over the inflation outlook.

Speaking to reporters, HKMA chief executive Eddie Yue said the interest rate differential between the Hong Kong dollar and its US counterpart would widen, and that carry-trade activity could push the local currency toward the weaker end of its trading band.

Yue added that US rate adjustments are subject to considerable uncertainty and may affect Hong Kong's interest rate environment, advising the public to manage interest rate risks carefully when making financial decisions.

The authority said Hong Kong's monetary and financial markets have continued to operate in an orderly manner. It noted that banks would weigh factors including funding supply and demand, prevailing interest rate levels and their own funding cost structures when setting rates.