HKMA warns of interest rate uncertainty amid Middle East war

The Hong Kong Monetary Authority (HKMA) has warned the public to beware of interest rate risks after it kept its base rate unchanged, following a similar move by the US Federal Reserve, as the city’s de facto central bank said that the Middle East conflict had added to the uncertainty over the pace of rate cuts this year.

It maintained the city’s base rate at 4 per cent on Thursday. Hours earlier, the Fed kept its target rate in the range of 3.5 per cent to 3.75 per cent, after the second meeting of the Federal Open Market Committee (FOMC) this year.

“The market generally considers that the path of US monetary policy remains quite uncertain, while recent tensions in the Middle East region introduce greater uncertainty to oil prices as well as the outlook for US inflation,” the HKMA said in a statement issued on Thursday.

“The future trend of US interest rates is quite uncertain, which may influence the interest rate environment in Hong Kong. The public should carefully manage interest rate risks when making decisions about property purchase, investment or borrowing.”

The uncertainties have dragged down the markets, with the benchmark Hang Seng Index down 2 per cent at one stage on Thursday, after the United States’ Dow Jones Industrial Average dropped 1.6 per cent after the Fed’s rate decision.

“Near term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by the supply disruptions in the Middle East,” Fed chairman Jerome Powell said in a media briefing after the FOMC meeting.