Remarks after the US Fed FOMC Meeting

The Federal Open Market Committee of the Federal Reserve (the Fed) just announced its decision to cut the target range for the federal funds rate by 25 basis points, to 4.25-4.5%.  The HKMA has reduced the Base Rate to 4.75% according to the established mechanism with immediate effect.

The further lowering of the federal funds rate is in line with market expectations.  Since September this year, the Fed has cut interest rates by a cumulative 100 basis points, and the “dot plot” released after this meeting indicated a slower pace of rate cuts than previously expected.  This also reflects that the pace of future rate cuts remains uncertain as it is dependent on US inflation and labour market data developments, and economic activity may also be influenced by fiscal, economic and trade policies.  

In Hong Kong, our financial and monetary markets have continued to operate in a smooth and orderly manner.  Market liquidity condition has remained stable, and the Hong Kong dollar exchange rate stays steady.  Under the Linked Exchange Rate System, Hong Kong dollar interbank rates generally track the US dollar counterparts, while shorter-tenor interbank rates tend to be also influenced by the supply and demand of Hong Kong dollar funding in the local market such as seasonal effects like the year end as well as capital market activities.

With regard to deposit and lending rates, banks will normally take into account factors such as funding supply and demand in the interbank market, the level of interbank rates and their own funding cost structures to assess the merit and extent of adjustments, if any.  Interest rates might still remain at relatively high levels for some time, and the extent and pace of future US interest rate cuts are subject to considerable uncertainty.  The public should carefully assess and continue to manage the interest rate risk when making property purchase, mortgage or other borrowing decisions.

Hong Kong Monetary Authority
19 December 2024