Macau cuts benchmark interest rate for third time this year

The Monetary Authority of Macao (AMCM) has cut its benchmark interest rate by 25 basis points, following an identical decision six weeks ago.

Yesterday’s lowering of the base rate to 2.0% is the third cut since the start of the year.

The quarter-point move follows the lead of the Hong Kong Monetary Authority (HKMA), which cut its benchmark interest rate yesterday in response to the U.S. Federal Reserve’s reduction in borrowing costs.

The Hong Kong dollar is pegged to the U.S. dollar in a band that ranges between HKD7.75 and 7.85 to the U.S. dollar. In turn, the Macau pataca is fixed to the Hong Kong dollar at an exchange rate of 1.03. As the Hong Kong dollar is pegged to the greenback, both special administrative regions essentially import U.S. monetary policy, although local banks are not obliged to follow with lower retail costs.

In a statement issued yesterday, the AMCM noted that the policy rates in Hong Kong and Macau “should be basically consistent in order to maintain the effective operation of the linked exchange rate system.”

Bloomberg reported that the move is unlikely to have much bearing on the local cost of borrowing, as lenders don’t necessarily pass on the rate to their customers.

“It is hard to say whether the Hong Kong interbank rates may follow the U.S. rate,” HKMA Chief Executive Eddie Yue said at a briefing yesterday. “However, the U.S. rate cut does reflect the downward pressure on the global economy, to which Hong Kong is not immune.”

“Looking ahead, we expect there’s still downward pressure on the U.S. rate,” said George Leung, HSBC Holdings’ Asia-Pacific adviser, at a separate briefing held yesterday. “This is likely to make the operating environment for banks like HSBC more challenging in the future, but we hope that it will bring some relief to our customers and maybe a little bit of sunshine to the gloomy economic outlook.”