The Hong Kong Monetary Authority, the HKMA, raised its benchmark interest rate by 25 basis points. This follows the US Federal Reserve's move to do the same because it wants to maintain financial system stability amidst increasing market volatility.
Quoting Bloomberg on Thursday (17/3), the basic interest rate increased to 0.75% from 0.5%. The rate moves in line with the Fed rate as the Hong Kong dollar is pegged to the US currency.
In response to the increase, HSBC Holdings Plc announced that it would not change its best lending rate, giving the economy room to breathe as it was hampered by the worst-ever virus outbreak, which has prompted the government to tighten restrictions.
The HKMA also said in a statement that past experience shows that Hong Kong dollar interbank rates do not necessarily rise in tandem with US moves.
Meanwhile, economists continued to lower their growth forecasts for Hong Kong for the year as the pandemic took its toll. Economic indicators such as retail sales and purchasing managers' indexes have slumped, supply chains have been disrupted, and the much-anticipated reopening with mainland China has been delayed.
"The HKMA will continue to monitor the market situation closely, with a view to maintaining the stability of Hong Kong's financial and monetary system," Chief Executive Eddie Yue said in a statement.
In recent months, Treasury Secretary Paul Chan has repeatedly assured investors that the city is in a good position to manage rising interest rates.
Hong Kong banks remain well-capitalized with strong liquidity positions, adding that changes in capital flows will not lead to an increase in interbank rates.