How Did Other Central Banks Respond Following the Fed?
The Hong Kong Monetary Authority has followed the U.S. Federal Reserve's decision to cut interest rates by lowering its own rates by 25 basis points. Meanwhile, central banks in Gulf countries such as Saudi Arabia and the United Arab Emirates have taken similar steps with the aim of maintaining dollar parity. In China, banks have increased mortgage rates for the first time since 2021, while New Zealand has entered a recession, experiencing sharper contractions than expected.
The Hong Kong Monetary Authority (HKMA) has reduced its base interest rate applied through the overnight discount window by 25 basis points, bringing it to 4.75%. HKMA Executive Director Eddie Yue stated that the pace of interest rate cuts in the U.S. is uncertain and is dependent on U.S. inflation, labor market data, and fiscal, economic, and trade policies affecting economic activity. Yue also emphasized that Hong Kong's financial and monetary markets are operating smoothly and that market liquidity conditions remain stable.
Yue noted that the Hong Kong dollar exchange rate is stable and added that there have been no fluctuations in the markets during this process. This interest rate cut decision may affect local banks' borrowing costs and attract the attention of investors.
Many Gulf countries, including Saudi Arabia and the United Arab Emirates, have taken similar steps following the Federal Reserve's decision to lower interest rates by 25 basis points. Central banks in these countries tend to align with the Fed's decisions due to their dollar parity maintenance policies. However, there is less cost pressure in the region compared to the U.S.
The UAE has reduced its base interest rate by 25 basis points to 4.40%, and Saudi Arabia has lowered its repo rate by 25 basis points to 5%. Qatar has reduced its deposit interest rate by 30 basis points to 4.60%, Bahrain has decreased its overnight deposit rate by 25 basis points to 5%, and Oman has lowered its repo rate for local banks by 25 basis points to 5%. These decisions indicate that economic policies in the region are developing in parallel with those of the U.S.
In China, banks have started to increase mortgage rates for the first time in three years following a contraction and slowdown in the real estate sector. According to data from Singapore-based Data Motion International Trading Pte., the average mortgage rate for first-time homebuyers in 42 major cities rose from 3.05% to 3.08% in November. This increase marks the first rise since October 2021.
Rising mortgage rates reflect the impact of narrowing margins in the real estate market on the economy. This move by Chinese banks stands out as a significant development concerning the sector's future performance and the effects of economic slowdown.
New Zealand's economy has entered a recession, with a sharper-than-expected decline in the third quarter. Gross domestic product (GDP) contracted by 1.0% in the quarter ending in September, while the market expectation was for a contraction of 0.2%. The figure for the second quarter was also revised downward, showing a decline of 1.1%.
Consecutive contractions over two quarters are technically defined as a recession. This contraction being higher than market expectations may raise the likelihood of changes in the New Zealand Central Bank's interest rate policies. A recession is a significant indicator for the future policy moves of the country's economy.