HKMA raises base rate following Fed increase

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The Hong Kong Monetary Authority raised its base rate by 25 basis points on Thursday for the second time in three months following a similar move made by the US Federal Reserve.

The currency is pegged to the US dollar, which compelled the HKMA to raise rates on Wednesday to prevent a surge in outflows by matching the Fed’s decision to raise the target range for the federal funds rate to between 0.75 per cent to 1 per cent.

Norman Chan, the HKMA’s chief executive said capital outflows were to be expected as US interest rates rise, Reuters reported.

“In the past couple of years, $130 billion came into the financial system and that is kept in a separate pocket we hold,” Chan said. “We have all the money in highly liquid form, such as US Treasuries, that we hold ready for those who want US dollars.”

Thursday’s move by the HKMA brings the base rate to 1.25 per cent, up from the 1 per cent rate set in December.

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