This April 11, 2023 photo shows the entrance to the Hong Kong Monetary Authority in Central, Hong Kong. (CALVIN NG / CHINA DAILY)

HONG KONG – The Hong Kong Monetary Authority (HKMA) on Thursday raised its base rate charged through the overnight discount window by 25 basis points to 5.50 percent with immediate effect, hours after the US Federal Reserve delivered a rate hike of the same margin.

The special administrative region’s monetary policy moves in lock-step with the United States as the city's currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.

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The base rate is the interest rate forming the foundation upon which the Discount Rates for repurchase transactions through the Discount Window are computed. 

The market has continued to operate in a smooth and orderly manner and the total deposits in the banking system in Hong Kong have also remained stable.

Eddie Yue, Chief Executive, HKMA

"Rate hikes in the US will not affect the financial and monetary stability of Hong Kong," HKMA Chief Executive Eddie Yue Wai-man told reporters. 

"The market has continued to operate in a smooth and orderly manner and the total deposits in the banking system in Hong Kong have also remained stable."

Hong Kong interbank rates, which have been rising over the past few months, will likely rise further with the Fed latest rate hike, according to the HKMA.

The public should therefore carefully assess the interest rate risk when taking out mortgages or making other borrowing decisions, it added.

On Wednesday, the Fed raised interest rates by a quarter of a percentage point and signaled it may pause further increases, giving officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling and monitor the course of inflation.

In a statement Thursday morning, the HKMA – the city’s de facto central bank – said the base rate is currently 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 higher.

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Commenting on impact of rate hike on the property market, one of the most unaffordable territories in the world, Yue said the market is not affected by interest rate levels alone.

After the Chinese mainland and Hong Kong markets have returned to normalcy post COVID-19, investment sentiment in the real estate market has improved, and consumption power has risen, he said. 

“The Hong Kong property market has rebounded by 5-6 percent year-to-date," he said, adding other economic factors also play a part.

With inputs from Reuters