Hong Kong tracks Fed hike but flags risks from trade

By Noah Sin and Donny Kwok

HONG KONG (Reuters) – The Hong Kong Monetary Authority (HKMA) on Thursday warned of increasing downside risks to the economy from uncertainty over the Sino-U.S trade dispute, urging residents to be prepared for possible market volatility after U.S. interest rate hikes.

The HKMA had earlier on Thursday raised the base rate charged through its overnight discount window by 25 basis points, just hours after the U.S. Federal Reserve raised its interest rates by a quarter of a percentage point.

Norman Chan, the chief executive of Hong Kong’s de facto central bank, the HKMA, said rising interest rates reflected a normalization from a low rate environment.

“The current economic and financial conditions are still full of uncertainties with increasing downside risks. I would like to remind the public again to manage their risk prudently and to be prepared for possible market volatility moving forward,” Chan told reporters.

Hong Kong’s policy moves in lock-step with that of the United States because its currency is pegged to the greenback.

The Fed on Wednesday said it was keeping the core of its plan to hike borrowing costs intact even as policy makers stated they would likely slow the pace of further rate increases next year.

The Hong Kong authority sets its base rate through a formula that is 50 basis points above the prevailing U.S. Fed Funds Target (NYSE:) or the average of the five-day moving averages of the overnight and one-month HIBORs (Hong Kong Inter-bank Offered Rate).

On the Hong Kong property market, which has begun to show signs of strain amid the rising rate environment and a grimmer outlook to the global and Chinese economies, Chan said it was still too early to say if the market is in a downward cycle, with more data needed.

He indicated earlier, that should this be the case, the HKMA might consider easing measures.

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