Hong Kong Banks Keep Interest Rates Steady

Major leading local banks kept their interest rates steady, despite a rate cut by the US Federal Reserve overnight on Wednesday.

The Fed cut its main interest rate by a quarter of a percentage point for the second time this year and the Hong Kong Monetary Authority followed suit, cutting the base rate by 25 basis points to 2.5 percent.

HKMA chief executive Norman Chan said with the linked exchange system, the Hong Kong dollar interest rate should track the US dollar interest rates in the long run.

But in the short-term, Chan said, interest rates movement will be affected by changes in the supply and demand of Hong Kong dollar funding.

Chan said the public should be prudent because of the uncertain short-term outlook for interest rates in the United States, but also warned of local factors dragging down growth.

"We have seen also Hong Kong-specific issues created by the social unrest in the last few months. A number of sectors have been affected rather badly like retail, tourism and the dining industry," said Chan, citing anecdotal evidence of people being asked to take unpaid leave by their employers.

"It all adds to this downward pressure, so I won't be surprised if the government comes up with a forecast for another [period of] negative growth in the third quarter," Chan said.