Remarks after the US Fed FOMC Meeting
Speeches
16 Jun 2022
Remarks after the US Fed FOMC Meeting
Eddie Yue, Chief Executive, Hong Kong Monetary Authority
- The Federal Open Market Committee of the Federal Reserve (the Fed) announced a rate hike of 75 basis points at the early hours today (Hong Kong time) after its two-day meeting, raising the target range for the federal funds rate to 1.5%-1.75%. The HKMA has adjusted the Base Rate upward by 75 basis points to 2% according to the established mechanism with immediate effect.
- The Fed’s 75-basis-point rate hike is higher than the expected level conveyed by the Fed after its last meeting, mainly due to the latest US inflation data hitting another 40-year high, but is still consistent with recent market expectation.
- Hong Kong’s monetary and financial markets continue to remain stable despite the US’s multiple rate hikes, with the foreign exchange market operating in an orderly manner and market liquidity being ample. As the US raised interest rates again, there will be incentives for market participants to conduct carry trades when the Hong Kong dollar and US dollar interest rate differentials are sufficiently wide, driving funds to gradually flow from the Hong Kong dollar to the US dollar. Therefore it is normal for the Hong Kong dollar to remain weak.
- According to the design of the LERS, when the weak-side Convertibility Undertaking at 7.85 is triggered, the HKMA will buy Hong Kong dollars and sell US dollars. This was exactly what happened in May and this week. All these are normal operations in accordance with the design of the LERS.
- Under the LERS, the Hong Kong dollar interbank rates will gradually track the US dollar interbank rates. However, the speed and magnitude of the Hong Kong dollar interbank rates’ catching up with their US dollar counterparts will still be subject to the supply and demand of the Hong Kong dollar funding in the local market. As for the commercial interest rates of banks, they will decide on the timing and magnitude of adjusting their saving and lending interest rates having regard to their own funding cost structures and other relevant considerations. The public should carefully assess and manage the relevant risks when making property purchase, mortgage or relevant decisions.
- The HKMA will continue to closely monitor market situations with a view to maintaining monetary and financial stability.