HONG KONG, March 22 — Hong Kong’s de facto central bank followed the Federal Reserve’s lead and raised its base rate today.
In accordance with rules underlying the city’s currency peg to the US dollar, the Hong Kong Monetary Authority lifted the rate at which banks can borrow from it by a quarter-point to 2 percent after the Fed made a similar move overnight.
Ample liquidity means the increase may have little effect on interbank rates, which have lagged behind their US equivalents.
The Hong Kong dollar was steady at HK$7.8452 as of 7.24am local time. The currency is close to the weak end of its HK$7.75-7.85 band as the low funding costs have prompted traders to short the local currency.
When the Hong Kong dollar does reach the limit of its band, the HKMA will need to step in and mop up local liquidity — which may increase interbank rates at a quicker pace and finally mark the end of the era of ultra-cheap money. — Bloomberg
