On Friday, Hong Kong’s de facto central bank made a significant move by cutting its policy base rate by 0.25% to 5.00%. This decision aligns with the recent action taken by the US Federal Reserve to reduce its key rate by the same amount. Unlike many other central banks, the Hong Kong Monetary Authority (HKMA) has a unique approach; it does not focus on targeting inflation rates.
Instead, it prioritizes stabilizing the foreign exchange rate of the Hong Kong dollar. Since being handed over by the UK to become a special administrative region of mainland China in 1997, Hong Kong has preserved its own currency and monetary authority. The HKMA maintains a peg for the Hong Kong dollar within a range of 7.75 to 7.85 against the US dollar.
In a statement following the rate cut, the HKMA noted, "Our financial and monetary markets have continued to operate in a smooth and orderly manner. Market liquidity condition has remained stable, and the Hong Kong dollar exchange rate stays steady." However, the HKMA cautioned that interest rates may decrease gradually in the future.
"The rate-cut cycle in the US is still at its initial stage. Interest rates might still remain at relatively high levels for some time. The public should carefully assess and continue to manage the interest rate risk when making property purchase, mortgage, or other borrowing decisions," stated the central bank.
Looking ahead, Hong Kong’s economy is projected to grow between 2.5% and 3.5% year-on-year in 2024, based on a government forecast made in mid-August..