The Hong Kong Monetary Authority (HKMA) has reduced its base interest rate by 25 basis points to 4.75% on Thursday, aligning its decision with the recent actions of the US Federal Reserve. This adjustment is detailed in a Thursday statement from the financial regulator. The base rate, a crucial figure for determining discount rates for repurchase transactions through the discount window, is calculated using a pre-defined formula.
It is determined by either being 50 basis points above the lower end of the US federal funds rate target range or the average of the five-day moving averages of overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is higher. Following a recent reduction by the US Federal Reserve to the federal funds rate target range on December 18, the lower end now sits at 4.5%.
This change translates into HKMA's base rate of 4.75%, which exceeds the current average of the five-day moving averages of HIBORs, now recorded at 4.2%. In reaction to this shift, major banks in Hong Kong have implemented similar rate cuts. HSBC has lowered its Hong Kong dollar best lending rate by 12.5 basis points to 5.25%, while Bank of China (Hong Kong) has adjusted its Hong Kong dollar prime rate to 5.25%, down from 5.375%.
The monetary policies of Hong Kong closely mirror those of the United States, as the city's currency is tightly pegged to the US dollar, fluctuating within a narrow range of 7.75 to 7.85 per dollar..