The Chief Executive of the HKMA’s response on the US Fed FOMC Meeting

The US Fed FOMC decided last night to maintain the target range of the fed funds rate at 2.25%-2.50%.

Although the FOMC has kept the fed funds rate unchanged, we note its comments on increased uncertainties in the US economic outlook, and an obvious split in Members’ views on interest rate path.  While half of members preferred the interest rate to remain unchanged this year, the other half considered one or two reductions necessary.

Norman Chan, Chief Executive of the HKMA said, “In Hong Kong, the Hong Kong dollar interbank interest rates will continue to be influenced by US dollar interest rates and other factors such as changes in the market supply of and demand for Hong Kong dollar funding.  The Hong Kong dollar interbank rates have gradually increased over the past year as interest rate normalisation progressed, with increased volatility due to seasonal factors including half-year-end effect.  Recently one-month HIBOR once rose to 2.6%.  As HIBOR increased, carry trade activities reduced and the Hong Kong dollar exchange rate strengthened once to 7.8170 level.  Notwithstanding this, transactions in the Hong Kong dollar FX and interbank markets have remained smooth.  Movements of Hong Kong dollar interbank and exchange rates are also consistent with the operation of the Linked Exchange Rate System.”

“Future direction of fund flows has become more uncertain in view of the increased uncertainties in the Fed’s monetary policy direction.  The public should stay vigilant in managing the potential risks arising from market volatilities,” added Mr Chan.

Hong Kong Monetary Authority
20 June 2019