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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