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Speeches

Remarks after FOMC Meeting

by Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority

20 December 2018

  1. As widely expected, the US Fed raised its policy rate by 25 basis points last night. This is the fourth rate hike this year, or the ninth time since December 2015. This morning the HKMA also adjusted the Base Rate for the Discount Window upward by 25 basis points to 2.75%.
  2. Hong Kong dollar interest rates have been gradually rising. For example, one-month HIBOR has risen from 1.19% at the end of last year to 2.4% recently. Although the recent tightening in interbank rates were driven by year-end effects, HIBORs are gradually moving nearer to US dollar interest rates.
  3. Banks’ term deposit rates have also risen. For example, recently some banks are offering 2.7% for three-month term deposits. Saving deposit rates and prime rates also increased by 0.125%-0.25% in September. It is a commercial decision for banks to decide when and by how much they wish to raise their deposit and lending interest rates in response to the Fed’s interest hikes, having regard to their own funding structure and costs.
  4. The global macro-economic and financial environment is facing a lot of uncertainties. For example, whether the China / US trade dispute would worsen after March next year and whether there would be a hard Brexit will bring about substantial uncertainties. The effects of China / US trade dispute have not yet been reflected in Hong Kong’s trade and economic data so far. However, investment and business sentiment has worsened. The negative sentiment has taken effect in the financial markets. In particular, Hong Kong equities have declined significantly since end-January this year. The Hang Seng Index had declined from a high to a low during the year by 25%, before stabilising recently. Still, the index has declined by more than 10% year to date. In the US, the equities market had performed well this year, before significant sell-offs since late-September and early October. The US equities market has dropped by more than 10% from the peak, which is to a certain extent reflecting investors’ concern that the continuing or worsening trade dispute may lead to a lose-lose outcome for both China and the US.
  5. The current economic and financial conditions are still full of uncertainties with increasing downside risks. I would like to remind the public again to manage the risks prudently and to be prepared for possible market volatilities going forward.
Last revision date: 20 December 2018
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