Trade Resources Economy Hong Kong Raises Base Rate after U.S. Fed's Move

Hong Kong Raises Base Rate after U.S. Fed's Move

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The Hong Kong Monetary Authority raised its base rate from 0.5 percent to 0.75 percent on Thursday, following the U.S. Federal Reserve's lead overnight and raising concerns of capital outflows from the region.

The Hong Kong dollar's peg to the U.S. dollar means the region's monetary policy follows that of the Fed, which raised rates for the first time in nearly a decade, as expected, on Wednesday.

Hong Kong's monetary authority had held its rate at a record low since 2008, tracking the Fed as the U.S. brought its benchmark down to near zero to combat the financial crisis.

The Fed's decision to increase rates means that emerging market economies will continue to experience capital outflows and downward pressure on their exchange rates, economic growth and asset markets, Norman Chan, chief executive of the Hong Kong Monetary Authority, told reporters Thursday.

Hong Kong's Financial Secretary John Tsang advised the public to make necessary preparations in terms of managing the credit, liquidity and other relevant risks in order to cope with possible shocks and adjustments that may arise from the normalization of U.S. and Hong Kong interest rates.

He said Hong Kong is capable of dealing with large capital inflows and outflows as the region boasts sound economic foundation and mature financial system, adding that he expects to see a gradual capital outflow.  

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