Hong Kong’s de facto central bank raised its base rate by 25 basis points on Thursday in line with the Federal Reserve’s move overnight.
The move by the Hong Kong Monetary Authority brings the base rate to 2.25 per cent, according to Reuters data, and comes after the Fed raised the target range for the federal funds rate from 1.75 to 2 per cent, in the seventh increase of the current cycle and the second this year.
Hong Kong is compelled to raise rates to prevent a rise in outflows as its currency is pegged to the US dollar.
The Fed also signalled that two more increases are likely in 2018 as policymakers gave a bullish assessment of the US economy amid accelerating growth and rapid job creation. In a statement, the US central bank dropped previous crisis-era assurances that it would keep rates below their longer-run norms.
Following the announcement, US Treasury prices fell and the yield curve flattened.
The Hong Kong dollar, which has held near 33-year lows since March, was steady at HK$7.8474 before markets opened in Hong Kong on Thursday.