Hong Kong raises in­ter­est rates af­ter lat­est moves in US 1.77 per­cent

China Daily (Hong Kong) - - BUSINESS - By DUAN TING in Hong Kong tingduan@chi­nadai­lyhk.com

Hong Kong raised its in­ter­est rates by a quar­ter point to 1 per­cent on Thursday, with im­me­di­ate ef­fect ac­cord­ing to a pre­set for­mula, for the first time in a year, fol­low­ing the 25-ba­sis point up­ward shift of US fed­eral funds rate last night.

Nor­man Chan Tak-Lam, chief ex­ec­u­tive of the Hong Kong Mon­e­tary Au­thor­ity, said the in­crease of US in­ter­est rates ear­lier is within ex­pec­ta­tion and a grad­ual path of in­ter­est rate hike in the next three years is ex­pected, adding that Hong Kong in­ter­est rate will over time track US dol­lar in­ter­est rate move­ments.

Chan elab­o­rated that the pace of US mon­e­tary pol­icy nor­mal­iza­tion re­mains uncertain due to the tight­en­ing la­bor mar­ket, ris­ing en­ergy and com­mod­ity prices, and the fis­cal pol­icy of the in­com­ing US ad­min­is­tra­tion. The three fac­tors may have a sig­nif­i­cant im­pact on in­fla­tion and in­fla­tion ex­pec­ta­tion go­ing for­ward.

While the pace of US mon­e­tary pol­icy nor­mal­iza­tion is set to have some im­pacts on cap­i­tal flows, ex­change rates and as­set prices in the global mar­ket, ac­cord­ing to Chan. He warned the pub­lic to stay vig­i­lant and pre­pare for the mar­ket volatil­ity and risk that may arise from the nor­mal­iza­tion of

the de­crease in the Hang Seng In­dex on Thursday

US and Hong Kong in­ter­est rates later on.

Chan also men­tioned that the ris­ing trend in Hong Kong dol­lar in­ter­bank in­ter­est rates is likely to be grad­ual, de­pend­ing on the scale of out­flows from the Hong Kong dol­lar, in­ter­na­tional de­vel­op­ments and other re­lated fac­tors.

Ac­cord­ing to the HKMA, un­der the Linked Ex­change Rate Sys­tem, Hong Kong has ex­pe­ri­enced a strong cap­i­tal in­flow since 2008, amount­ing to over $130 bil­lion, and the Mon­e­tary Base has ex­panded sub­stan­tially to HK$1.6 tril­lion ($206 bil­lion), which has pro­vided the bank­ing sec­tor in Hong Kong with am­ple liq­uid­ity and drove in­ter­bank in­ter­est rates to very low lev­els.

Most of the in­sti­tu­tions sur­veyed by China Daily ex­pected the United States to raise in­ter­est rates once this week and there will be two to three fur­ther rates hikes by the end of next year.

Hang Seng In­dex dropped 397.22 or 1.77 per­cent to close at 22,059.40 on Thursday and Hang Seng China En­ter­prises In­dex de­creased 64.4 or 1.75 per­cent to 3,621.92.

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