Hong Kong Continues to Mime Fed Policy

April 26, 2012

The Hong Kong Monetary Authority retained a 0.5% base rate, one day after the FOMC kept a zero to 0.25% federal funds target.  The HKMA typically copies whatever the Fed does regarding the U.S. interest rate target with an announcement a day after the U.S. action.  The base rate enjoys a slight premium relative to the federal funds target.  The last change of Hong Kong’s base rate was announced December 17, 2008.  A day after the Fed cut its target by 75-100 basis points and established the current range of zero to 0.25%, Hong Kong’s base rate was lowered by 100 basis points to 0.5%.

Domestic monetary policy since October 1983 has been subordinated to enforcing the HKD’s link at 7.80 per USD give or take a nickel.  The local currency was pegged to the U.S. currency in late 1983 to preclude selling pressure ahead of the return of the former British colony to Chinese sovereignty in mid-1997.  Long after Chinese rule was established, a fixed exchange rate regime in Hong Kong still serves a useful purpose for this highly trade-dependent economy.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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