HKMA reduces base rate to 5% in response to US Fed rate cut

The US Fed imposed a 25bps cut to its federal funds rate.

The Hong Kong Monetary Authority (HKMA) reduced its base rate to 5% in response to the U.S. Federal Reserve’s 25-basis point downward adjustment to its federal funds rate.

The central bank's new rate took effect on 8 November.

"The Base Rate is the interest rate that serves as the foundation for computing the Discount Rates for repurchase transactions through the Discount Window," the central bank explained.

According to the HKMA's pre-set formula, the base rate is determined by either setting it at 50 basis points above the lower end of the prevailing target range for the U.S. Fed rate or by using the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is higher.

Since the former was 5% and the latter was 3.87%, the base rate was set at 50 basis points above the lower end of the prevailing target range for the U.S. Fed rate.