Monetary Authority cuts base rate to 1.50%

The Monetary Authority of Macau (AMCM) lowered the benchmark interest rate yesterday by 50 basis points to 1.50%, in line with similar decisions in Hong Kong and the U.S.

The U.S. Federal Reserve announced yesterday (Macau time) that it would cut interest rates to the range of 1% to 1.25%. It marked the first time the central bank has cut rates between scheduled policy meetings since the 2008 financial crisis and it’s the steepest rate cut the Fed has made since then.

Bloomberg reported that the move in Hong Kong was an automatic response to Fed Chairman Jerome Powell’s emergency 50 basis point reduction to counter the economic effects of the spreading coronavirus epidemic.

According to the Associated Press, Powell said lower rates can help keep credit flowing, particularly to struggling businesses already laden with debt that would otherwise face higher borrowing costs. He suggested that the Fed’s intervention would boost consumer and business confidence and provide “a meaningful boost to the economy.”

The local governments in Hong Kong and Macau have already unveiled stimulus programs designed to shore up their coronavirus-battered economies.

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.” DB/Agencies