The Hong Kong Monetary Authority increased its base rate by 75 basis points to 2.75% on Thursday after the Federal Reserve raised interest rates.
The HKMA moves in lockstep with the Fed, given the Hong Kong dollar’s peg to the greenback.
Now attention will turn to Hong Kong banks -- including HSBC Holdings Plc and Standard Chartered Plc -- which have so far this year maintained their best lending rates following the monetary authority’s hikes.
Economists expect the banks will lift their rates this year, some by as much as 100 basis points. That would be the first time in four years that Hong Kong banks have done so.
A rise in prime rates would increase borrowing costs for companies and individuals at a time when Hong Kong’s Covid restrictions continue to weigh on the economy and hurt employment.
The Fed’s hawkish path this year, which has pushed the HKMA to raise rates even as the city’s economy struggles, has also fueled debate about the effectiveness of the linked exchange rate system.
See also: China tightens securities lending rule to support stock market
HKMA Chief Executive Eddie Yue called out “irresponsible” comments about the mechanism in a statement last week, while Financial Secretary Paul Chan said Hong Kong’s foreign exchange reserves can support the system even amid capital outflows.
