You will discover that the HKMA base price is barely above the Fed Funds price.
The HKD trades in a band linked to the US greenback prescribed by the HKMA. You’ll be able to see the bounds of the band within the chart beneath.
The Hong Kong Financial Authority (HKMA) adjusts its rates of interest consistent with the U.S. Federal Reserve’s selections primarily due to the linked alternate price system between the Hong Kong Greenback (HKD) and the US Greenback (USD).
Established in 1983, this technique pegs the HKD to the USD inside a slim band, presently at a price of about 7.8 HKD to 1 USD, with allowable fluctuations inside a decent vary.
To maintain the forex peg secure, the HKMA should regulate its rates of interest to be consistent with these of the USD. If the rates of interest in Hong Kong had been considerably greater than these within the U.S., it will appeal to a circulate of USD into Hong Kong, rising the demand for HKD and probably pushing the alternate price exterior its designated band. Conversely, if Hong Kong’s charges had been a lot decrease, it will encourage outflows of HKD in alternate for USD, once more risking the soundness of the peg.
