(Bloomberg) — The Hong Kong Monetary Authority cut its benchmark interest rate in line with the U.S. Federal Reserve, opening the door for lower retail borrowing costs to boost the sagging economy.
The HKMA on Thursday lowered its base rate to 2.5% from 2.75%, in step with the Fed’s quarter point move. As the Hong Kong dollar is pegged to the greenback, the city essentially imports U.S. monetary policy.
The first base rate reduction in more than a decade comes as the city is facing the economic downdraft from slowing global trade, China’s weakening expansion and political turmoil at home. Gross domestic product contracted 0.3% from the previous quarter, while growth on a year-ago basis remained at 0.6%, according to data released on Wednesday.341647551
The rate Hong Kong banks charge each other for loans over three months has fallen sharply in July, offering some leeway for lenders to follow the HKMA’s move and in turn lower their borrowing costs to retail customers.
The HKMA is now in a transitional period, with chief executive Norman Chan set to be replaced in October by his long-time deputy Eddie Yue, who will have to face risks ranging from a resurgent property market to intermittent sniping against the city’s currency peg.
To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Chris Bourke
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