Macau and Hong Kong Banks follow US interest rates but do not reproduce them exactly: China Daily

23 January 2006

Macau, China, 23 Jan – Banks in Hong Kong and Macau will continue to follow adjustments in interest rates in the united States but will not reproduce them exactly, the president of Macau Banking Association told Chinese daily newspaper, China Daily.

Zhang Hongyi, the general manager of the Bank of China in Macau, told China Daily Friday that banks in Hong Kong and Macau had not increased their interest rates in line with US banking institutions in the year since the current cycle had begun.

The United States Federal Reserve has increased interest rates 13 times in the period but Macau and Hong Kong banks have not followed suit and have even lowered rates by 1 basis point.

For Zhang, this shows that the indexation of the Hong Kong dollar to the US dollar and Macau’s pataca to the Hong Kong dollar is not as strict as people believe.

However, Zhang warned that this did not mean that the indexation system would come to an end.

Previously, some analysts had said that the indexation system could be changed when they saw that Hong Kong and Macau banks were lowering interest rates while in the United States the trend was just the opposite.

According to the China Daily report, this situation is due to the influence that China’s currency, the renmimbi, also has on the two markets.

When the current cycle of increased interest rates began in 2004, the market speculated that the renmimbi would increase in value against the dollar in the short term, for which reason large amounts of renmimbi entered the Hong Kong and Macau banking system, with the hope of making quick profits.

The large size of cash reserves in the Macau and Hong Kong banks made it impossible for them to increase their interest rates at that time, which led to an increase in the difference between US rates and those practiced in the two special administrative regions.

Zhang H forecast that Macau would maintain the Hong Kong dollar indexation system and that in the future it would change its interest rates in line with the United States.

But, he said, the timetable and adjustment margin could vary in relation to supply and demand and banks could even adjust their rates in a unilateral way. (macauhub)