Li Dazhi: The Hong Kong dollar interbank interest rate is still at a relatively high level in the short term. Pay attention to the global market fluctuations and risks.

On September 18, local time, the Federal Reserve announced a significant interest rate cut of 50 basis points, bringing the federal funds target range down to 4.75% - 5%. Subsequently, the Hong Kong Monetary Authority lowered its base rate by 0.5 percentage points to 5.25%, effective immediately, marking the first base rate cut by the Hong Kong Monetary Authority since 2020. Acting Chief Executive of the Hong Kong Monetary Authority Eddie Yue stated that with the decrease in US interest rates, Hong Kong market rates have room to decrease, which will have a positive impact on the economy. However, the timing of adjustments to bank deposit and lending rates must take into consideration a range of factors. He also noted that Hong Kong's Prime Rate did not fully align with US interest rate hikes during the US Federal Reserve's rate hike cycle, so the speed of prime rate reductions may not necessarily sync fully with the US. He mentioned that interest rates are expected to remain at relatively high levels for a visible period of time, advising caution and risk management for citizens engaging in property purchases, mortgages, and borrowing activities. Eddie Yue pointed out that the US has raised interest rates by a cumulative 5.25% during its rate hike cycle, and with inflation entering the expected downturn and the labor market cooling, the Federal Reserve's half-point rate cut roughly aligns with expectations. The dot plot released by the Federal Reserve shows that the Fed may continue to cut rates by 0.5% and 1% respectively in the coming year, but future rate cuts remain uncertain and will hinge on US inflation and labor market conditions, as well as the impact of rate cuts on the economy. Investors should keep an eye on global market fluctuations and risks. However, currently, Hong Kong's currency and financial markets are operating smoothly, with the Hong Kong dollar stable. Short-term interest rates are influenced by factors such as fund supply and demand and capital market activities Currently, Hong Kong dollar interbank rates are generally close to US dollar interest rates, especially for longer-term interbank rates. However, short-term rates are affected by factors such as fund supply and demand, capital market activities, seasonal factors, etc. The Hong Kong Monetary Authority stated that in response to the US lowering the federal funds target range by 50 basis points on September 18 (US time), setting the lower limit of the current US federal funds target range at 5.25%, the average of the 5-day moving average of overnight and 1-month Hong Kong Interbank Offered Rates was 3.21%, therefore the basic rate was set at 5.25%. The Hong Kong Monetary Authority will closely monitor changes in the financial market Eddie Yue emphasized that the initiation of a rate cut cycle by the US will not affect the stability of Hong Kong's currency and financial markets. However, due to the imperfect synchronization of the two economies, adjustments in monetary policy will inevitably affect financial market fluctuations. The Hong Kong Monetary Authority will closely monitor changes in the financial market, the impact of the interest rate cycle on the economy, and ensure currency and financial market stability. Cost of capital is only one factor influencing investors' decisions Eddie Yue stated that this rate cut brings a more accommodative change to the global financial environment, providing flexibility for small and medium-sized enterprises or individuals with loans. However, the impact and transmission of rate cuts on the overall economy and capital flow still depend on other factors such as developments in the global economy and international geopolitical situations. Moreover, the cost of capital is only one factor influencing investors' decisions. After a two-day meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds target range by 0.5 percentage points to 4.75 to 5% following the Federal Reserve Chairman Jerome Powell's caution that this 0.5% rate cut does not necessarily indicate the pace of future rate cuts. Despite this, traders have increased their bets on future rate cuts in the US.