'Hong Kong Also Takes 'Giant Step' for Two Consecutive Months Under Dollar Peg System'

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Hong Kong, which has adopted the 'dollar peg system' that moves the currency value in tandem with the US dollar, has implemented a 'giant step' interest rate hike for two consecutive months.

According to Bloomberg News, the Hong Kong Monetary Authority (HKMA) announced on the 28th that it would raise the base interest rate by 0.75 percentage points to 2.75%, the highest level since 2019. Hong Kong adopts the dollar peg system, where the currency value moves within the range of 7.75 to 7.85 Hong Kong dollars per US dollar.

However, unlike the US, which is experiencing the worst inflation in over 40 years, Hong Kong is facing growing concerns of economic recession due to the impact of high-intensity lockdowns amid the COVID-19 pandemic. Contrary to the global surge in prices, local inflation in Hong Kong has remained stable.

Amid China's zero-COVID policy enforcement, the combination of business closures, overseas company withdrawals, and interest rate hikes is expected to place a significant burden on Hong Kong's economy. The news agency expressed concern that "interest rate hikes will increase borrowing costs for businesses and individuals in a situation where COVID-19 restrictions have already damaged the economy and employment."

Eddie Yue, CEO of the HKMA, stated last week that the dollar peg system "has worked well for the past 40 years and there are no plans to change it."

This content was produced with the assistance of AI translation services.