Hong Kong raises benchmark interest rate to 14-year high

Hong Kong has raised its benchmark interest rate to a 14-year high following the United States Federal Reserve’s aggressive 0.75 percentage point hike overnight.

The Hong Kong Monetary Authority, the international financial hub’s de facto central bank, on Thursday lifted the key borrowing rate by 0.75 percentage point to 3.5 percent, following the US central bank’s third straight 0.75 percentage point hike.

Hong Kong’s monetary policy moves in lock-step with the US as the city’s currency is pegged to the dollar.

While inflation is running rampant in the US and across much of the world, Hong Kong’s government has forecast modest price growth of 2.1 percent for the year. The Chinese-ruled city entered its second recession in three years during the second quarter as strict COVID-19 curbs, including border restrictions, stifled economic activity.

Hong Kong Financial Secretary Paul Chan on Thursday told local media there was a “very high chance” the city would end the year in recession.

The US Fed on Wednesday signalled it would continue to drive up the cost of borrowing in the coming months as it seeks to rein in high inflation, raising the risk of tipping the world’s largest economy into recession.

Dutch multinational financial services firm ING said in a note following the Fed’s latest decision that a downturn was looking “virtually impossible to avoid”.

“The Fed is effectively acknowledging that a recession is coming, but inflation will not fall quickly and there will be a lot of pain,” ING said in the note.