The Monetary Authority of Macao lowered the benchmark interest rate yesterday by 64 basis points to 0.86%. The move marks the second reduction this month, and follows similar decisions in the United States and neighboring Hong Kong.
The rate cut announced by the U.S. Federal Reserve is designed to stimulate the U.S. economy in response to the damage anticipated by the Covid-19 coronavirus outbreak.
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.”
Hong Kong followed the Fed as usual and reduced its benchmark rate by 64 basis points to 0.86% hours after the Fed. It also reduced capital buffers.
Meanwhile, countries across Asia are following the decision in the U.S.
The Bank of Korea slashed its benchmark interest rate to a record low of 0.75% in an emergency move following actions by the U.S. Federal Reserve.
New Zealand issued an early-Monday emergency rate cut of 75 basis points to 0.25%, and promised to keep the new rate for at least a year.
India’s central bank took a number of liquidity measures yesterday and didn’t rule out an interest rate cut at its April meeting.
In the Philippines, central bank Governor Benjamin Diokno, who is due to announce a rate decision on Thursday, signaled he could cut by more than 25 basis points. DB/Bloomberg
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