Hong Kong's monetary and financial markets remain fully operational, said Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), on September 17, while cautioning the public to stay alert to interest rate risks.

The U.S. Federal Reserve's Federal Open Market Committee raised its benchmark interest rate by 25 basis points early this morning Hong Kong time, lifting the target range for the federal funds rate to 3.75-4%. In line with the established mechanism, the HKMA hiked the Base Rate for the Discount Window by the same margin to 4.25%, effective immediately.

The Fed's rate increase aligned with market expectations. The post-meeting statement indicated that economic growth continues, the labor market remains steady, but inflation stays elevated. This decision underscores the committee's concerns about the inflation outlook.

On the local front, Hong Kong's currency and financial systems are functioning in an orderly manner. The spread between U.S. and Hong Kong interest rates has widened further, and carry trade activities could gradually weaken the Hong Kong dollar. The trajectory of the HKD exchange rate and interbank rates is subject to considerable variability, influenced by factors such as the U.S.-Hong Kong rate differential, demand and supply of HKD funds, including capital market activities and other seasonal elements.

For deposit and lending rates, banks typically weigh interbank liquidity, HIBOR movements, prevailing rate levels, and their own funding cost structures when deciding whether and by how much to adjust. The path of U.S. rate changes remains highly uncertain, hinging on inflation trends, labor market conditions, and other economic data. This uncertainty will also impact Hong Kong's interest rate environment, and the public should carefully assess and manage interest rate risks when making property purchases, investments, or borrowing decisions.

The HKMA will continue to closely monitor market developments to maintain monetary and financial stability.