Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority
As expected, the FOMC increased the Fed funds target rate by 25 basis points last night. While the Fed anticipated a gradual path of interest rate increases in the next three years, there remains considerable uncertainties over the pace of US monetary policy normalisation because of the following three factors: (i) the tightening labour market; (ii) rising energy and commodity prices; (iii) the fiscal policy of the incoming US administration. These three factors may have significant effects on inflation and inflation expectation going forward.
Under the Linked Exchange Rate System, the Hong Kong Dollar interest rate will over time track the movements in the US dollar interest rate. Recently, the 1-month HIBOR has increased from a low of 0.24% in early September to 0.66% yesterday. The rising trend is expected to continue to be affected by the scale of outflows from the Hong Kong Dollar, international developments, and other related factors, and it will be difficult to forecast precisely the pace of Hong Kong Dollar interest rate normalisation.