Hong Kong raises benchmark rate to 14-year high | Inflation

The de facto central bank of the financial center raises key interest rates to 3.5 percent after the latest rate hike in the United States.

Hong Kong has raised its benchmark rate to a 14-year high after the Federal Reserve’s aggressive 0.75 percentage point hike overnight.

The Hong Kong Monetary Authority, the de facto central bank of the international financial center, on Thursday raised its key lending rate by 0.75 percentage point to 3.5 percent, following the US central bank’s third consecutive 0.75 percentage point increase.

Hong Kong’s monetary policy is moving in step with the US as the city’s currency is pegged to the dollar.

While inflation is rampant in the US and much of the world, the Hong Kong government forecasts modest price growth of 2.1 percent for the year. The Chinese-ruled city entered its second recession in three years in the second quarter as strict COVID-19 restrictions, including border restrictions, suppressed economic activity.

Hong Kong’s financial secretary, Paul Chan, told local media on Thursday that there was a “very high probability” that the city would end the year in recession.

The US Fed said on Wednesday that it would continue to drive up borrowing costs in the coming months as it seeks to curb high inflation, raising the risk of the world’s largest economy slipping into recession.

Dutch multinational financial services firm ING said in a note following the latest Fed decision that a downturn seemed “virtually impossible to avoid”.

“The Fed is basically recognizing that a recession is coming, but inflation is not going to fall any time soon and there will be a lot of pain,” ING said in the note.

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