Hong Kong Cuts Base Rate Following Fed’s Emergency Move

(Bloomberg) -- The Hong Kong Monetary Authority cut its benchmark interest rate in line with the U.S. Federal Reserve.

The HKMA on Wednesday lowered its base rate to 1.50% from 2.00% in step with the Fed’s move according to a “pre-set formula”.

The move is an automatic response to Fed Chairman Jerome Powell’s emergency 50 basis point reduction to counter the economic effects of the spreading coronavirus epidemic.

As the Hong Kong dollar is pegged to the greenback, the city essentially imports U.S. monetary policy. Local banks aren’t obliged to follow with lower borrowing costs, though the city’s battered economy after months of political protests and now the virus outbreak is in need of support

Hong Kong’s government unveiled a giveaway-packed budget in February, as well as a projected record deficit for 2020, as officials attempt to prevent the first back-to-back annual recessions on record. Months of political unrest over China’s role in the city pushed Hong Kong last year into a slump that the shutdowns associated with the coronavirus epidemic are now worsening.

©2020 Bloomberg L.P.