Remarks after the US Fed FOMC Meeting

(Abridged version)

• The Federal Open Market Committee of the Federal Reserve (the Fed) has decided to cut the federal funds rate by 25 basis points.  The HKMA has reduced the Base Rate by the same amount according to the established mechanism with immediate effect. 
• The rate cut decision is in line with market expectations.  The “dot plot” indicates that the Fed might cut rates further by a total of [50 basis points] before the end of this year.  However, the pace of future rate cuts remains quite uncertain, and may depend on various factors including US labour market and inflation developments, and the effects of tariff measures and other economic policies on economic activities.
• Hong Kong’s monetary and financial markets have continued to operate in an orderly manner.  Following the repeated triggering of the weak-side Convertibility Undertaking (CU) in late June to mid-August, the Aggregate Balance declined accordingly, lifting Hong Kong dollar interbank rates,  and strengthening the Hong Kong dollar exchange rate towards the middle of the Convertibility Zone.  Such interaction between the Hong Kong dollar exchange rate and Hong Kong dollar interest rates demonstrated the normal operation of the Linked Exchange Rate System.    
• In terms of Hong Kong dollar deposit and lending rates, banks will normally take into account factors such as funding supply and demand, the level of interbank rates, and their own funding cost structures to assess the merit and extent of adjustments. 
• The extent and pace of future US interest rate cuts are subject to uncertainty, which may influence the interest rate environment in Hong Kong.  The public should carefully manage interest rate risks when making financial decisions.  The HKMA will continue to closely monitor market developments and maintain monetary and financial stability.