HK cuts its base rate to 3.5%

The Hong Kong Monetary Authority adjusted the Base Rate downwards by 25 basis points to 3.5% here Friday, following the 25 basis-points cut in the U.S. federal funds target rate.

Joseph Yam, chief executive of the Monetary Authority, the city's de-facto central bank, told reporters here Friday that the U.S. interest rate outlook is uncertain as the country's economic activities remain weak.

U.S. economic growth in the past two quarters stood at only 0.6percent, Yam said, adding its tight credit conditions and the deepening housing contraction are likely to weigh on economic growth.

He said local banks will decide on whether to follow suit, adding there is limited room for lowering the deposit rate. Banks will be more cautious under the volatile market conditions.

The Base Rate of Hong Kong is the interest rate forming the foundation upon which the Discount Rates for repurchase-agreement transactions through the Discount Window are computed.

The Base Rate in Hong Kong is currently set at either 150 basis points above the prevailing U.S. federal funds target rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Inter bank Offered Rate, whichever is higher.