Hong Kong Monetary Authority - Remarks after the US Fed FOMC Meeting

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15 Jun 2023

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 early today (Hong Kong time) that it has decided to keep the target range for the federal funds rate unchanged at 5-5.25%.
The Fed’s policy decision is generally in line with market expectations. However, the high interest rate environment in the US may last for some time, and the Fed may hike rates again. The Fed will continue to take into account inflation and employment data, as well as the impact of earlier rate hikes on the economy, in making future interest rate decisions. The interest rate path in the US will remain uncertain.
Since the US began raising rates in March last year, the widening interest-rate differential between the Hong Kong dollar and the US dollar has incentivized carry trades. This led to selling of Hong Kong dollars with the weak-side Convertibility Undertaking being triggered repeatedly and a corresponding decline in the Aggregate Balance, which has gradually driven up Hong Kong dollar interest rates. This process is in line with the design and expected functioning of the LERS. The market has continued to operate in a smooth and orderly manner. The Hong Kong dollar exchange rate has strengthened since early May, mainly driven by dividend payment-related demand from listed companies and seasonal factors, such as half-year-end funding needs by corporates. With the half-year-end approaching, coupled with the need to pay dividends, the possibility that Hong Kong dollar interbank rates will catch up with, or even overshoot, their US dollar counterparts on certain days cannot be ruled out. The public should be mindful of the Hong Kong dollar interbank rate movements.
When determining commercial interest rates, banks will consider the structure of their own funding cost and other relevant factors. As the high interest rate environment may last for some time, the public should be mindful of interest rate movements and relevant risks when purchasing property, taking out mortgages or making other borrowing decisions.
The HKMA will continue to closely monitor market developments and maintain monetary and financial stability.

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