HKMA Warns Of Economic Cost Of Protests

The Hong Kong Monetary Authority (HKMA) said on Thursday that the Hong Kong economy faces additional headwinds because of social unrest, and predicted that official figures would show that the economy contracted in the third quarter.

It also warned that the Sino-US trade war was having an impact.

The Authority was commenting after cutting the base rate by 25 basis points to 2.25 percent, matching an overnight rate cut by the US Federal Reserve.

The HKMA Chief Executive, Norman Chan, said the public should be prudent because of the uncertain short-term outlook for interest rates in the United States, but also warned of local factors dragging down growth.

"We have seen also Hong Kong-specific issues created by the social unrest in the last few months. A number of sectors have been affected rather badly like retail, tourism and the dining industry," said Chan, citing anecdotal evidence of people being asked to take unpaid leave by their employers.

"It all adds to this downward pressure, so I won't be surprised if the government comes up with a forecast for another (period of) negative growth in the third quarter," Chan said.

The US Federal Reserve cut its benchmark interest rate for the second time this year on Wednesday, but the policy committee is divided, with three of the 10 voting members dissenting.

The central bank also moved to ease concerns about a cash crunch on financial markets by adjusting its key policy tool to help pump more funds through the financial plumbing.

The Fed's policy-setting Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.75 to 2.0 per cent, as expected, and has now pulled back on half of the four interest rate increases in 2018.

"Although household spending has been rising at a strong pace, business fixed investment and exports have weakened," the committee said in a statement.

And while officials continue to believe the most likely outcome is for the economy to continue to grow and inflation to gradually increase, "uncertainties about this outlook remain."

US Federal Reserve chairman Jerome Powell and other Fed officials have frequently cited the uncertainty generated by President Trump's trade war with China which is hanging over the economy.

The Fed also cut the interest it pays to banks on cash reserves above the required level by 30 basis points to 1.8 per cent, in a bid to push more cash into markets.

A cash shortage in recent days prompted the New York Fed on Tuesday and Wednesday to pump US$128 billion in funds into the short-term market as interest rates soared and threatened to break out of the Fed's target range. (RTHK, AFP)

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