Hong Kong leaves base rate unchanged at 4.75% as US Fed defies Trump’s rate-cut pressure The Hong Kong Monetary Authority (HKMA) kept its base rate unchanged in lockstep with the US Federal Reserve, after the American central bank said it needed more time and data to monitor the potential inflationary impact of President Donald Trump’s tariffs. On Thursday, the HKMA maintained its rate at 4.75 per cent, hours after the Fed left its target range between 4.25 per cent and 4.5 per cent during the fifth Federal Open Market Committee (FOMC) meeting of the year. The Fed has stood pat on rates for five meetings in a row, defying Trump’s pressure to cut the cost of funds. HSBC Holdings, Standard Chartered and Bank of China (Hong Kong) later said they would not change their prime rate and deposit rate. Commercial banks in the city decide when to change their rates and do not always follow the HKMA. The HKMA said there were a number of variables guiding US interest rates. “It would depend on the trend of the US inflation, employment data, alongside the implication of the tariffs and other fiscal policies to the economy,” the HKMA said in a statement on Thursday. “There are many, many uncertainties left to resolve,” Fed chairman Jerome Powell said after the FOMC voted 9-2 in favour of keeping its target rate unchanged. “It doesn’t feel like we are very close to the end of that process.” US stock indexes plunged and Treasury yields rose in the worst FOMC-day sell-off since December after Powell downplayed the prospects of cutting interest rates in mid-September when the FOMC is scheduled to meet next. “We have made no decisions about September, we don’t … do that in advance,” Powell said. “Consumers’ inflation expectations have come off their multi-decade highs but remain sufficiently high for the Fed to be reluctant to cut rates in July,” said Michael Krautzberger, CIO of public markets at Allianz Global Investors, in a note on Monday. The US inflation rate stood at 2.7 per cent in June, which was lower than readings in January and February. The rate hit a record high of 9.1 per cent in mid-2023. Under a currency peg known as the Linked Exchange Rate System, Hong Kong’s monetary policy has moved in lockstep with the Fed’s since 1983. The HKMA followed the Fed by cutting its base rate three times, totalling a full percentage point from September to December 2024. The current base rate is the lowest level since December 2022. The HKMA said on Thursday that it had intervened in the foreign exchange market for the seventh time since late June to defend the peg. The city’s de facto central bank sold US$500 million and bought HK$3.925 billion at HK$7.85 per US dollar during New York trading hours on Wednesday. The authority added that these operations would reduce the aggregate balance – a gauge of banking sector liquidity – to HK$82.55 billion on August 1. The local currency traded at HK$7.8492 after the intervention. It was the seventh time that the HKMA intervened in the market to defend the currency peg since June 26, buying a total of HK$91.1 billion and selling US$11.6 billion. The gap of around 3 percentage points between the Hong Kong and US dollar interest rates has attracted carry traders who have weakened the local currency, the HKMA said, adding that it might need to intervene in the market again to defend the trading band. If Hong Kong lenders were to cut the prime rate by 12.5 basis points two times, the rate would drop to a historical low of 5 per cent by December. “The prime rate, however, has a floor at 5 per cent since by that time the saving rate will drop to zero,” said Tommy Ong, the managing director of T.O. & Associates Consultancy. “Lower financing rates will help stabilise the housing market and increase investment demand. Lower interest costs definitely help the troubled developers and also the small and medium-sized enterprises.” Hong Kong’s commercial banks have trimmed their prime rate three times since September by a combined 62.5 basis points. The prime rates at HSBC, subsidiary Hang Seng Bank and Bank of China (Hong Kong) stood at 5.25 per cent. The rates at Standard Chartered, Bank of East Asia, Citigroup, CCB Asia and other lenders stood at 5.5 per cent. https://www.scmp.com/business/banking-finance/article/3320202/hong-kong-leaves-base-rate-unchanged-475-us-fed-keeps-eyes-inflation-pressure (ICE HONG KONG)

Fonte notizia: South China Morning Post