The Monetary Authority of Macao (AMCM) has adjusted the benchmark interest rate to 5% (+0.25%), AMCM noted in a press statement.
This is the highest interest rate applied in Macau since the global financial and economic crisis in December 2007. It is also the eighth time in less than one year that AMCM has raised the main interest rate.
The local money and financial activities regulator justified the decision following the announcement on Wednesday evening (Macau time) with reference to the US Federal Reserve (Fed) which also made a similar adjustment of +0.25%.
AMCM’s decision came shortly after its Hong Kong counterparty announced the increase of the region’s interest rate due to the direct impact related to the increase imposed by the Fed.
In the same statement, AMCM justified the adjustment of the local interest rate as inevitable, as the local currency is pegged to the Hong Kong dollar and so both regions share the same rate for consistency.
At the time of the announcement, the Fed also warned markets that this will certainly not be the last adjustment, with “ongoing increases” being appropriate and necessary to bring [US] inflation under control.
This shift had an immediate effect on the markets, with Hong Kong’s Hang Seng Index (HSI) opening with gains of 0.9%. In Shanghai, the Shanghai Composite Index (SSE) also presented gains of +0.2%. Eventually, the HSI adjusted over the late morning and during the whole afternoon, closing at -0.52%.
After a peak at closing from lunch break, SSE also adjusted over the afternoon but eventually closed still on positive ground by 0.023%.
In the European Union, the European Central Bank (ECB) is also preparing for another large interest rate increase.
ECB president Christine Lagarde said yesterday that a rate hike of half a percentage point is in the offing at the bank’s meeting (ongoing at press time in Macau). She also said that the hike will not be a one-off but rather is expected to continue.
The Bank of England is also expected to follow ECB in its decision of a half-point hike.
