Hong Kong could delay a rate hike even after the US Federal Reserve’s expected increase in borrowing costs next year, according to a Hang Seng Bank research report.
At a policy meeting last month, the Fed renewed its pledge to keep interest rates near zero for a “considerable time” after a bond-buying stimulus program ends, but also indicated that it could raise rates faster than expected, according to minutes released last week.
Most officials expect the US to tighten monetary policy in 2015. By the end of next year, the median projection for the key rate is 1.375 percent, which means the US would hike rates for at least four times next year, Hang Seng Bank noted, according to the Hong Kong Economic Journal.
Taking reference of historical data, plus a sounding banking system in Hong Kong, Hang Seng Bank believes Hong Kong would delay a rate hike. Even when the increase comes, it would be of smaller magnitude than the US action, it said.
The Hong Kong Monetary Authority has taken action to avoid sharp increase in the city’s money supply by issuing more foreign exchange fund bills. When the US increases its rates, HKMA can repurchase such bills to adjust market liquidity, giving buffer for a rate hike, according to the report.
The Fed has held benchmark overnight rates near zero since December 2008 after the financial crisis.
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