Hong Kong Base Rate Decreased to 5%: Here’s What It Means for Financial Markets
The Monetary Authority has announced an immediate reduction in the Hong Kong base rate, setting it at 5%. This adjustment follows a recent decision by the US Federal Reserve to lower its target range for the federal funds rate by 25 basis points. It aligns with a pre-determined formula that governs the local base rate calculation.
How the New Base Rate Was Calculated
The base rate serves as the cornerstone for determining the Discount Rates applied to repurchase transactions via the Discount Window. Its calculation depends on two benchmarks:
1. US Federal Funds Rate: The base rate is set at 50 basis points above the lower end of the target range.
2. Hong Kong Interbank Offered Rates (HIBORs): Alternatively, the rate considers the average of the five-day moving averages of overnight and one-month HIBORs.
Currently, 50 basis points above the US federal funds rate translates to 5%, while the HIBOR average stands at 3.87%. With the formula favouring the higher figure, the Hong Kong base rate has been established at 5%.
Impact of the Adjustment
The reduction in the Hong Kong base rate signals potential changes in borrowing costs for financial institutions and businesses. It reflects a response to global economic shifts while maintaining a calculated approach to local monetary stability.
For the Hong Kong economy, this adjustment could influence lending patterns and corporate investments. It can also affect market behaviour in the coming months.
Partner with 3E Accounting
Need expert guidance in navigating Hong Kong’s evolving financial landscape? Contact 3E Accounting, your trusted partner for corporate financial planning and compliance. Let us help you achieve your business goals.
