Hong Kong Monetary Authority Locksteps to Federal Reserve Cut

MT Newswires Live12-11

The Hong Kong Monetary Authority (HKMA) announced on Thursday that it cut its key base rate to 4.00% from 4.25%, following the similar overnight rate cut by the US Federal Reserve.

The HKMA also mirrored the Fed's two rate cuts earlier this year.

The HKMA base rate is set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate, or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is the higher, said the HKMA, which is the city's de facto central bank.

The Federal Reserve target range is presently higher than the HIBORs, so the HKMA base rate "is therefore set at 4.00%, according to the pre-set formula," said the HKMA.

In addition to pegging policy interest rates to the Federal Reserve's federal funds rate, the HKMA also rigidly maintains a fixed exchange rate of the Hong Kong dollar to the US dollar, at HK$7.8 to $1.

The HKMA maintains the fixed exchange rate by intervening in the foreign exchange market, buying or selling Hong Kong dollars as needed to keep the peg in place.

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