Eddie Yue: Remarks after the US Federal Open Market Committee
meeting
Remarks by Mr Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, at
the US Federal Open Market Committee meeting, Hong Kong, 15 December 2022.
* * *
1. The Federal Open Market Committee (FOMC) of the Federal Reserve (the Fed)
announced a rate hike of 50 basis points at the early hours today (Hong Kong
time) after its two-day meeting, raising the target range for the federal funds rate
to 4.25-4.5%. The HKMA has adjusted the Base Rate upward to 4.75% according
to the established mechanism with immediate effect.
2. With a 50-basis-point rate hike as expected by the market, the Fed has raised the
federal funds target range seven times consecutively by a total of 425 basis points
since March. Based on the statement and the "dot plot" released by the Fed after
the meeting, the rate hike cycle in the US has not yet completed and the US
terminal rate might continue to rise.
3. Rate hikes in the US will not affect the financial and monetary stability of Hong
Kong. Our monetary and financial markets continue to operate in a smooth and
orderly manner. The Linked Exchange Rate System (LERS) also continues to
work well.
4. Under the LERS, the Hong Kong dollar interbank rates generally track their US
dollar counterparts. As the US continued to raise interest rates, the Hong Kong
interbank rates have gradually risen in recent months. The market generally
expects the US dollar interest rates to continue to rise, and together with
increased Hong Kong dollar funding demand driven by seasonal demand and
local stock market activities, the Hong Kong dollar interbank rates might remain at
elevated levels for some time. The level of the Hong Kong dollar interbank rates is
an important consideration for banks to decide on their deposit and lending rates.
Therefore, the public should be prepared for the likelihood that banks' deposit and
lending rates may go further higher, and should carefully assess and manage the
relevant risks when making property purchase, taking out mortgage or making
other borrowing decisions.
5. On Hong Kong dollar exchange rate, the Hong Kong dollar has strengthened
compared with previous months. In addition to funding demand arising from
factors including year-end funding needs and the more vibrant stock market, more
importantly it also reflects the effective operation of the automatic interest rate
adjustment mechanism under the LERS. This mechanism is well understood by
the market which continues to have strong confidence in the LERS.
6. The HKMA will continue to closely monitor market situation and maintain
monetary and financial stability in Hong Kong.