Remarks after the US Fed FOMC Meeting

(Abridged version)

The Federal Open Market Committee of the Federal Reserve (the Fed) has decided to increase the federal funds rate by 25 basis points, raising the target range for the federal funds rate to 3.75-4%. The HKMA has adjusted the Base Rate upward by the same amount to 4.25% according to the established mechanism with immediate effect.

The Fed's rate hike decision is in line with market expectations. The FOMC statement indicated that economic activity was expanding at a solid pace and the labour market was stable, but inflation has remained elevated. The decision to hike policy rate reflects the Committee's concerns about the outlook on inflation.

Hong Kong's monetary and financial markets have continued to operate in an orderly manner. The HKD-USD interest rate differential will widen, and carry trade activities may cause the Hong Kong dollar to gradually ease. The outlook for the Hong Kong dollar and interbank rates can vary due to various factors, particularly the HKD-USD interest rate differential, the supply-demand conditions for Hong Kong dollars driven by, for example, capital market activities and other seasonal factors.

On Hong Kong dollar deposit and lending rates, banks will normally take into account factors such as funding supply and demand, the level of interest rates, and their own funding cost structures to assess the merit and extent of adjustments.

US interest rate adjustments are subject to considerable 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.