Statement by Norman T.L. Chan Chief Executive of the Hong Kong Monetary Authority to the media on 14 December 2017


14 Dec 2017

Statement by Norman T.L. Chan Chief Executive of the Hong Kong Monetary Authority to the media on 14 December 2017

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

As expected by the market, last night the US FOMC made a 25 basis points rate hike. This morning, the HKMA also adjusted our Base Rate for the Discount Window by 25 basis points to 1.75%.

The widening of the gap between HKD interest rates and USD interest rates will eventually lead to capital flowing out of the HKD. This will result in the gradual increase in HKD interest rates. However, capital outflow is not the only factor that can push up HKD interest rates. For instance, as seen recently, other market activities (e.g. IPO) can also tighten market liquidity and lead to increase in HKD interbank interest rates.

In addition, US tax reform, which will be passed soon, may also affect HKD interest rates. Three areas are worth attention:


tax cuts will provide short-term stimulus to the US economy and employment. This may have an impact on US inflation.


US companies repatriating their foreign earnings back to the US may tighten global liquidity, including in the emerging markets.


the US federal government might need to issue more debts to finance larger short-term budget deficits. This may push up bond yields.


In view of the above, we should pay attention to the risk of US inflation and interest rates rising faster than the market is expecting. HKD interest rates are still very low. As US interest rates continue to normalise, HKD interest rates will gradually normalise as well. We hope everyone manage their risks prudently when they enter into financial arrangements.

Lastly, there is an incorrect market saying that the HKMA does not want to see the weakening of HKD exchange rate and the triggering of our weak-side convertibility undertaking rate of 7.8500. I would like to point out that under the design of the Linked Exchange Rate System, the outflow of capital, weakening of the HKD exchange rate, triggering of the weak-side convertibility undertaking, and the reduction in the Monetary Base are part of the necessary process of HKD interest rate normalisation. The triggering of the weak-side convertibility undertaking is something that the HKMA is expecting.

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Last revision date : 14 December 2017