The Hong Kong Monetary Authority raised its base rate to 4.25% on 17 September, its first increase in over three years, a day after the Federal Reserve lifted its target range to 3-3/4 to 4%. Under the Linked Exchange Rate System, Hong Kong's monetary policy tracks the Fed's, even as the local economy is strong: real GDP rose 4.3% year on year in the second quarter, and the government raised its full-year growth forecast to 3.5-4.5%. HKMA chief executive Eddie Yue warned that a wider rate gap could weaken the Hong Kong dollar and encourage carry trades, and defending the peg drains liquidity from the banking system and pushes up HIBOR. The article notes that businesses cannot control bank rates, but financing secured against listed shares is priced off the value of the shares, which can take part of the imported rate path out of the calculation.
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