Hong Kong Financial Authority cuts its base charge by 25bp (as anticipated)

The Hong Kong Financial Authority is Hong Kong’s central financial institution.

The HKD trades in a band linked to the US greenback prescribed by the HKMA.

You possibly can see the boundaries of the band within the chart beneath.

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The Hong Kong Financial Authority (HKMA) usually adjusts its rates of interest in keeping with the U.S. Federal Reserve’s selections primarily due to the linked change charge system between the Hong Kong Greenback (HKD) and america Greenback (USD).

Established in 1983, this method pegs the HKD to the USD inside a slim band, at present at a charge of about 7.eight HKD to 1 USD, with allowable fluctuations inside a good vary.

To maintain the forex peg secure, the HKMA should modify its rates of interest to be in keeping with these of the USD. If the rates of interest in Hong Kong had been considerably greater than these within the U.S., it might appeal to a move of USD into Hong Kong, growing the demand for HKD and doubtlessly pushing the change charge outdoors its designated band. Conversely, if Hong Kong’s charges had been a lot decrease, it might encourage outflows of HKD in change for USD, once more risking the steadiness of the peg.

You may discover that the HKMA charge is barely above the Fed’s.

This text was written by Aaron Cutchburt at www.ubaidahsan.com.



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