Hong Kong Central Bank Raises Interest Rates In Respose to US Federal Reserve Interest Hike

The Hong Kong Monetary Authority (HKMA) raised its overnight discount window base rate by 25 basis points to 5.0 percent on Thursday, just hours after the U.S. The Federal Reserve raised interest rates by the same amount.

Hong Kong's monetary policy follows that of the United States, as the city's currency is pegged to the US dollar in a narrow range of 7.75-7.85 per dollar.

"Rate hikes in the U.S. will not affect the financial and monetary stability of Hong Kong," HKMA chief executive Eddie Yue told a media briefing, adding monetary and financial markets continue to operate in a smooth and orderly manner.

Following a year of larger hikes, the Federal Reserve reduced its latest policy decision to a quarter-point rate increase, with Fed Chair Jerome Powell predicting a "couple" more hikes.

"The rate hike cycle in the U.S. has not yet completed, the Hong Kong dollar interbank rates might remain at elevated levels for some time," Yue said.

High inflationary pressures and aggressive monetary tightening in advanced economies pose risks to Hong Kong. Higher borrowing costs and a bleak economic outlook have weighed on asset prices, with 2022 private home prices falling 15.6%, the first annual drop since 2008.

Cases of negative equity in the city's residential mortgage loans nearly doubled from the previous quarter, as home prices continued to fall during the period.

The HKMA described the rise in negative equity mortgage cases as "controllable," urging the public to brace themselves for the possibility of higher bank lending rates and advising homebuyers to exercise caution when making borrowing decisions.