China News Service, May 5th. The Hong Kong Monetary Authority announced today (5th) that the base interest rate will be raised to 1.25% according to the preset formula, with immediate effect.
The HKMA pointed out that in response to the US raising the target range of the federal funds rate by 50 basis points on May 4, local time, the lower limit of the current target range of the US federal funds rate plus 50 basis points is 1.25%, while the overnight and one-month Hong Kong interbank offered rates The average of the five-day moving average of 0.11%, so according to the preset formula, the base rate is set at 1.25%.
According to Wenhui.com, Yu Weiwen, President of the HKMA, responded that this rate hike will not affect the stability of Hong Kong’s currency, and there is currently no risk of market liquidity.
He emphasized that the linked exchange system has been effective for 40 years. He also pointed out that Hong Kong has a huge foreign exchange fund as the backing of linked exchange, the financial system has a solid foundation, and the banking system is very stable. Maintain the smooth operation of the linked exchange system.
Yu Weiwen pointed out that with the interest rate hike in the United States, the interest rate gap between the US dollar and the Hong Kong dollar has widened. Under the linked exchange system, there are incentives to carry out carry trades, and funds will gradually flow from the Hong Kong dollar into the US dollar. It is normal for the Hong Kong exchange rate to weaken.
He cited the U.S. rate hike cycle from 2016 to 2018. When the Hong Kong exchange rate hit the weak-side convertibility guarantee level of 7.85, the HKMA would buy the Hong Kong dollar and sell the U.S. dollar, and funds would flow out of the Hong Kong dollar system. There would be upward pressure on the Hong Kong interest rate, which would help offset the impact of carry interest. , so that the Hong Kong exchange stabilized 7.75 to 7.85 normal operation.
He said that the speed and extent of interest rate hikes in Hong Kong depend on the local market demand, and the interbank interest rate is determined by banks, and many Hong Kong interbank interest rates are based on one-month interbank interest rates.