Hong Kong’s de facto central bank today (February 2) raised its base rate in lockstep with the US Federal Reserve’s decision to raise its policy rate by 25 basis points.

The Hong Kong Monetary Authority (HKMA) set the base rate at 5% with immediate effect, increasing it by the same margin as the latest hike in the federal funds rate, which is now at a range of 4.5-4.75%, the highest since 2007.

In a related development, the Hongkong and Shanghai Banking Corporation says it will not change its best lending rate, which is currently at 5.625%. The rate was last changed on December 16 2022, when it was raised by 25bp. HSBC says it will also not change the rate for its Hong Kong dollar savings deposits.

Hong Kong’s economy shrank 3.5% last year, after decreasing 4.2% year-on-year in the fourth quarter, according to the city's Census & Statistics Department.

The US Federal Open Market Committee’s action at its first meeting for 2023 is the eighth consecutive hike in the federal funds rate since March last year, although a marked slowdown from the 75bp rate increases it had made in 2022 to rein in inflation.

Federal Reserve chairman Jerome Powell reaffirmed the US central bank’s commitment to keep interest rates elevated despite a moderation in price growth. The inflation rate in the US has dropped from its June 2022 peak of 9.1% to 6.5% last December. The Fed’s benchmark target is around 2%.