Hong Kong: Interest Rates Up Again, End of Tightening Perhaps Not As Close As Hoped; February Inflation Well Down, Two-Month Trade Growth in Line with Q4

Summary

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As expected, the Hong Kong Monetary Authority followed closely on the heels of the US Federal Reserve and raised its main interest rates by 25 basis points on 29 March. Although the move had been anticipated, the markets were slightly concerned about Fed comments that hinted that rate rises could continue for a while longer and the Hang Seng index duly retreated 0.7% on the day, led down by rate-sensitive stocks. No real damage to prospects is seen at this stage but if the economy unexpectedly weakens then sentiment could be adversely affected if the belief grows that the tightening cycle has a way further to run. February retail sales data are awaited to see if the solid growth seen in January continues, though not necessarily at quite the same level. Solid February visitor figures and labour market data (with December-February unemployment sticking at a cyclical low) appear to bode well for early year consumption. February consumer prices fell back more than expected, though the year-on-year rise was still 2.1% and no marked change is expected this year. February trade growth was much stronger than expected. On a two-month basis, export and import growth were reasonably strong and close to the pattern set in Q4, with imports just outpacing exports and the deficit rising.

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Hong Kong: Interest Rates Up Again, End of Tightening Perhaps Not As Close As Hoped; February Inflation Well Down, Two-Month Trade Growth in Line with Q4

HKMA follows US in raising rates by 0.25%

The Hong Kong Monetary Authority (HKMA) announced early on 29 March that it had raised the base rate charged through its overnight discount window by 25 basis points to 6.25% following the move by the US Federal Reserve to increase its benchmark federal funds rate by 25 basis points to 4.75%. Hong Kong tends to follow US rate moves because of its currency board system of pegging the HKD to the USD though, depending on Hong Kong interbank offered rates and market pressures on the HKD, it may choose to defer or advance adjustments for a while. Later in the day Bank of C...

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