Remarks after FOMC Meeting


27 Sep 2018

Remarks after FOMC Meeting

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

Remarks on 27 September 2018

As widely expected, the FOMC raised its policy rate by 25 basis points last night. This morning, the HKMA also adjusted our Base Rate for the Discount Window by 25 basis points to 2.5%.


I believe that the Fed is highly likely to continue to raise interest rates because:


in the short run the US economic growth momentum continues to be strong thanks to the front loading of the massive fiscal stimulus;


labour market conditions are tight, which could lead to higher wage pressure;


commodity and energy prices have been holding up with oil prices at US$80 per barrel; and


the trade tariffs, if implemented fully, may lead to higher consumer goods prices. 

All these could lead to rising inflation pressure in the US. The Fed expects one more hike this year and three times in 2019. However, there is the risk that inflation and interest rates in the US may rise at a pace faster than the market has expected.

Hong Kong

The HKD interest rates have been steadily rising from the low levels in 2017. One-month HIBOR is now at 2.2%, a rise of 1.8% from the low of 0.4% in 2017.

Many banks have raised also their term deposit rates in recent months. With the rising HIBOR and term deposit rates in line with the hike in US interest rates, the funding cost of the banking system has increased. Many market participants are now expecting that the prime lending rates and savings deposit rates may soon be raised. If this should happen, it will be the first hike in the last 12 years.

Banks have different funding cost structures. It is a commercial decision for them to decide whether, when and by how much they wish to adjust their interest rates.


The current global economic conditions and financial environment are full of uncertainties for Hong Kong. It is unclear whether the asset market, especially the property market, would undergo significant adjustments, or whether China/US trade tension would worsen and drag on, or whether the pace of US interest rate normalisation would be quicker than expected. The public is well advised to be on high alert and remain vigilant of these uncertainties and to manage the risks prudently.

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Last revision date : 27 September 2018