Hong Kong Monetary Authority adjusts Base rate formula, cutting borrowing costs by 100 bps

By Jennifer Chiou

New York, Oct. 8 - The Hong Kong Monetary Authority announced an adjustment in the methodology for the determination of the Base rate in Hong Kong, which will cut the cost of discount window borrowings by 100 basis points.

Currently, the Base rate is set at the higher of either 150 bps above the prevailing U.S. Federal Funds Target Rate or the average of the five-day moving averages of the overnight and one-month Hibors. The authority noted that it announces the Base rate everyday before the interbank market opens in Hong Kong.

Beginning Thursday, this formula for determination of the Base rate will be changed by reducing the spread of 150 bps above the prevailing Federal Funds rate to 50 bps.

Joseph Yam, the chief executive of the Hong Kong Monetary, said that this change would amount to a cut in the interest rates for borrowings through the discount window by 100 bps.

The Base rate is the reference on which the interest rates charged by the authority for different types of borrowings by licensed banks through the discount window are calculated, the release said.

The authority noted that overnight borrowings through the discount window, for example, are charged the Base rate and term borrowings are charged at a premium over the Base rate.

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