The HKMA has a fixed peg exchange rate system to the U.S. dollar and sets the base rate 50 basis points above the target of the U.S. federal funds rate or the average of the overnight and one-month Hong Kong Interbank Offered Rates, whichever is the higher.
Hong Kong's peg to the U.S. dollar has been called into question by many observers as China's yuan gains growing international use and someday will be fully convertible.
The Hong Kong dollar was trading at 7.75 to the U.S. dollar today.
The Hong Kong Monetary Authority issued the following statement:
"The Hong Kong Monetary Authority (HKMA) announced today (Thursday) that the Base Rate was adjusted upward by 25 basis points to 0.75% with immediate effect according to a pre-set formula. The increase in the Base Rate follows the 25-basis point upward shift in the target range for the US federal funds rate on 16 December (US time).
The Base Rate is the interest rate forming the foundation upon which the Discount Rates for repurchase transactions through the Discount Window are computed. The Base Rate is currently set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is the higher."