The Macau Monetary Authority (AMCM) said yesterday it has raised its base rate of the discount window by 75 basis points to 2.0 percent.
The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from a central bank (aka reserve bank) or quasi-central bank (such as the AMCM), usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. The term originated with the practice of sending a bank representative to a reserve bank teller window when a commercial bank needed to borrow money.
The move by Macau’s monetary regulator came after the US Federal Reserve announced the most aggressive interest rate increase since 1994, raising its benchmark borrowing rate by 0.75 percentage points on Wednesday as it battles surging inflation in the US.
Yesterday’s AMCM statement underlined that “as the pataca is linked to the Hong Kong dollar, the movement of policy rates in Hong Kong and Macau should be basically consisted in order to maintain the effective operation of the linked exchange rate system.”
Hence, the statement noted, the local monetary regulator followed its Hong Kong counterpart in adjusting its base rate.
The Hong Kong Monetary Authority (HKMA) increased its base rate by 75 basis points to 2 percent yesterday, just hours after the Fed’s hike. Monetary policy in Hong Kong moves in lockstep with the US given the Hong Kong dollar’s peg with the greenback.
Through its direct HK dollar link, the pataca is indirectly pegged to the US dollar.
Meanwhile, HKMA Chief Executive Eddie Yue Wai-man, said yesterday he expected the HK dollar to remain weak as the interest rate gap between the HK dollar and the greenback was widening further, RTHK reported.
Hong Kong’s Financial Secretary Paul Chan Mo-po was quoted by RTHK as saying that thanks to the US dollar peg, Hong Kong had a strong buffer to defend the local currency against any capital outflows.
However, he added that the city’s exporters may see difficult times ahead.
“So, the impact… from a global standpoint would make the economic situation externally deteriorate, perhaps making it more difficult for us in terms of exports,” he acknowledged.
