The Hong Kong Monetary Authority (HKMA), Hong Kong’s de-facto central bank, raised its benchmark interest rate for a seventh time this year, following the US Federal Reserve, by 50 basis points to 4.75% on Thursday. Hong Kong raises rates in line with the Fed due to the Hong Kong Dollar’s peg to the US Dollar. Hong Kong’s economy is not a strong position with the government forecasting a 3.2% gross domestic product contraction for 2022 on weak global demand and the slow removal of pandemic restrictions.
Hong Kong has been hit by Beijing’s crackdown on technology and private education firms back in July, and then the debt crisis at mainland Chinese developer China Evergrande Group. In an already precarious situation with the Chinese property market implosion higher rates have helped drive Hong Kong’s property market into a rare downturn, prices of residential properties and rent for office space also collapsed.
Hong Kong’s biggest banks such as HSBC Holdings Plc and Standard Chartered Plc are expected to hike their prime rates later today for the third time this year.
The Fed’s aggressive monetary tightening this year has raised concerns about Hong Kong’s linked exchange rate system, including its sustainability and relevance. Just last month, American investor Bill Ackman who founded hedge fund Pershing Square Capital Management, said that the mechanism no longer made sense for the city. He placed a monstrous bet for it to fail shorting the Hong Kong dollar.
The Hong Kong Monetary Authority however has said that it does not need or intend to change the system, citing strong buffers and deep liquidity in the banking system.
From The TradersCommunity Research Desk