Hong Kong authority cuts base rate by adjusting formula
8/10/2008 17:00
The Hong Kong Monetary Authority announced today that it is to adjust the
methodology for determining the base rate starting from tomorrow, which will
amount to a base rate cut by 100 basis points.
"As a result, there will be a
cut in the Base Rate, effective tomorrow, from 3.5 percent to 2.5 percent," said
Joseph Yam, Chief Executive of Monetary Authority.
The base rate in Hong Kong
was currently set at either 150 basis points above the prevailing US Federal
Funds Target Rate ( FFTR) or the average of the five-day moving averages of the
overnight and one-month HIBORs, whichever is higher.
With the adjustments
effective from tomorrow, one leg of the formula for determining the base rate
will be changed by reducing the spread of 150 basis points above the prevailing
FFTR to 50 basis points, while the other leg remains unchanged.
Yam said the
rate cut will help alleviate tight liquidity in the market and thereby help
those who are on mortgages for real property, among others.
Hong Kong banks
had been unwilling to lend recently, pushing the interbank lending rates ever
higher, which also forced the banks to raise interest rates on
mortgages.
However, Yam also said the effect of the change will not be seen
immediately.
A local banker said the rate cut to help alleviate the pressure
on banks to raise lending rate, but he did not expect to see immediate effect in
the short run.
It was just a matter of confidence, as local banks had
abundant liquidity but were not willing to risk lending amid the current
turmoil, said Stanley Wong, director and deputy general manager of the
Industrial and Commercial Bank of China (Asia) Limited, in an interview with
public broadcaster RTHK.
The Hong Kong stock market, which opened shortly
after the announcement, appeared to be nevertheless troubled by weak sentiments
as it tumbled 695.78 points, or 4.14 percent, to open at 16,107.98, tracking
overnight losses on the Wall Street.
Xinhua
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