Hong Kong's base interest rate drops to 5% after Fed's quarter-point cut

South China Morning Post11-08

Hong Kong's de facto central bank has cut its base interest rate for the second time this year, lowering the cost of funding to help reboot businesses and reduce the burden on mortgage borrowers. The ...

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Together with the half-percentage-point cut in September, Hong Kong's key rate has fallen to a level last seen in February 2023.Hours earlier, the US Federal Reserve cut its key rate at the same margin and said it would maintain its target rate in a range of 4.5 per cent to 4.75 per cent, following the seventh meeting of the Federal Open Market Committee  this year. The rate-cut cycle is expected to last until next year.Do you have questions about the biggest topics and trends from around the world?Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.\"For 2025, however, the p","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SCMP":"Sucampo Pharmaceuticals","FOMC":"FOMO CORP.","GDP":"古德里奇","COMP":"Compass, Inc.","BK4539":"次新股","BK4077":"互动媒体与服务","BK4079":"房地产服务","BK4213":"石油与天然气的勘探与生产"},"translate_title":"美联储降息25个基点后香港基准利率降至5%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"US7Y.BOND":1,"US6M.BOND":1,"FOMC":1,"GDP":1,"SCMP":1,"US10Y.BOND":1,"US12M.BOND":1,"US2Y.BOND":1,"US30Y.BOND":1,"US3Y.BOND":1,"US5Y.BOND":1,"COMP":0.9,"US912797HE00.BOND":0.6},"content_text":"Hong Kong's de facto central bank has cut its base interest rate for the second time this year, lowering the cost of funding to help reboot businesses and reduce the burden on mortgage borrowers.\nThe Hong Kong Monetary Authority (HKMA) cut the city's base interest rate by a quarter percentage point to 5 per cent. Together with the half-percentage-point cut in September, Hong Kong's key rate has fallen to a level last seen in February 2023.\nHours earlier, the US Federal Reserve cut its key rate at the same margin and said it would maintain its target rate in a range of 4.5 per cent to 4.75 per cent, following the seventh meeting of the Federal Open Market Committee (FOMC) this year. The rate-cut cycle is expected to last until next year.\nDo you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.\n\"The pace of future rate cuts remains uncertain as it is subject to US economic data, which will be influenced by fiscal, economic and trade policies,\" the HKMA said in a statement after the rate cut. \"The risk of global financial market volatility should continue to be closely monitored.\"\n\"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 HKMA said, while reiterating calls for the public to beware of interest-rate risks when buying property or taking out loans.\nThe Fed's decision was widely expected, with 97.5 per cent of traders anticipating the 25-basis-point reduction that the Fed delivered, while the rest expected no change, according to data compiled by CME Group, based on Fed fund futures contracts on Tuesday.\n\nFederal Reserve's Chairman Jerome Powell spoke during a news conference at the Federal Reserve in Washington DC on Sept. 18, 2024. Photo: AP alt=Federal Reserve's Chairman Jerome Powell spoke during a news conference at the Federal Reserve in Washington DC on Sept. 18, 2024. Photo: AP>\n\"This further recalibration of our policy stance will help maintain the strength of the economy and the labour market and will continue to enable further progress on inflation as we move toward a more neutral stance on time,\" Fed chairman Jerome Powell said.\nThe Fed's rate cut was decided during a two-day meeting on Wednesday and Thursday, instead of the usual Tuesday and Wednesday, due to the US presidential election on Tuesday, which returned Donald Trump to the White House for a second term.\n\"Today's meeting doesn't change the view that the Fed is still on the path to lower rates, and another rate cut in December is likely unless the inflation and labour market data surprises materially to the upside,\" Kerry Craig, global market strategist of JPMorgan Asset Management, said on Friday after the rate cut.\n\"For 2025, however, the picture will be complicated by the potential for trade and tax policies to add to the inflation outlook.\"\nUS stock markets jumped on Thursday as investors weighed the Fed's latest rate cut, extending the gain after Trump's victory. All three major US indexes hit intraday records: the S&P500 edged up 0.7 per cent to close at a historic high of 5,973.10, while the Nasdaq Composite rose 1.5 per cent to close at 19,269.46. The Dow Jones Industrial Average closed almost unchanged at 43,729.34 after it climbed 1,500 points on Wednesday.\nHong Kong's benchmark Hang Seng Index advanced 1.1 per cent to 21,180.93 at 9.54am local time. Japan's Nikkei 225 rose 0.4 per cent, while South Korea's Kospi gained 0.8 per cent.\n\"Fed policy [is] likely to stay the course in the near term, but the outlook for 2025 is more uncertain,\" T. Rowe Rice's chief US economist Blerina Uruci said on Thursday. \"The March 2025 forecasts presented by the FOMC is likely to be the first opportunity to fully incorporate the new president's policies into their outlook. The Fed Chair nomination in May 2026 will be hand-picked by Trump and may have a dovish tilt.\"\nThe rate cut came amid signs that inflation is under control. US inflation slowed to 2.4 per cent in September from 2.5 per cent in August, according to consumer price index data released by the Labor Department on October 10. Although the reading is the lowest since February 2021, it is still higher than the Fed's target of 2 per cent. Inflation peaked at more than 9 per cent in mid-2022.\n\"Interest-rate markets are almost fully pricing a 25-basis-point rate cut at the November meeting, and pricing around a 60-per cent probability of a further 25-basis-point cut in December,\" Michael Krautzberger, global CIO of fixed income at Allianz Global Investors, said in a research note on Monday.\nThe Fed still wants to move towards a more neutral policy stance as its confidence grows about the inflation outlook, he said.\n\"We think inflation and labour-market data will allow the FOMC to keep easing, but we think it will do so gradually,\" Brian Martin, head of G3 Economics at ANZ, said on Monday.\n\nA liquor shop on Lee Tung Avenue in Wan Cha on16 October 2024. Photo: May Tse alt=A liquor shop on Lee Tung Avenue in Wan Cha on16 October 2024. Photo: May Tse>\nThe rate cut is good news for struggling Hong Kong businesses and mortgage borrowers.\nThe city's gross domestic product (GDP) grew by 1.8 per cent in the third quarter, slower than the 3.2 per cent growth in the second quarter and 2.8 per cent in the first quarter, according to the Census and Statistics Department. In the first nine months, the economy expanded 2.6 per cent from a year earlier. The government's full-year forecast is of growth of between 2.5 and 3.5 per cent.\nHSBC, Standard Chartered, Bank of China (Hong Kong) and other lenders will say whether they plan to adjust their prime rates and deposit rates later today.\nThe major lenders cut their prime rates by a quarter point immediately after the US reduction in September.\n\"Hong Kong lenders may not cut their prime rates this time because the Hong Kong dollar funding costs have been rising since Fed's last interest rate cut in September,\" said Tommy Ong, managing director of T.O. & Associates Consultancy.\nThe one-month Hong Kong interbank offered rate (Hibor), which is used to price many mortgage loans, rose to 4.0291 per cent on Thursday, compared with 3.6144 on September 19, according to data published by the Hong Kong Association of Banks. Three-month Hibor, linked to corporate and personal loans, rose to 4.2283 per cent from 3.9023 per cent over the same period.\nThe HKMA has followed the Fed's monetary policy in lockstep since 1983 under its linked exchange rate system to preserve the local currency's peg to the US dollar.\nThe prime rate at Bank of China (Hong Kong), HSBC and its subsidiary Hang Seng Bank is set at 5.625 per cent. The rate at Standard Chartered, Bank of East Asia, Citigroup, CCB Asia and other lenders stands at 5.875 per cent.\nThis article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved. \nCopyright (c) 2024. South China Morning Post Publishers Ltd. 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