Compression

The compression of interest rates throughout the developed world is in full swing. The ECB will follow, regardless of the fact that the only input for their decision function on monetary policy is supposedly "price stability" (i.e., inflation and inflation expectations)

Hong Kong Cuts Base Rate to 3.5 Percent, Tracking Fed (Update1)

By Nipa Piboontanasawat
May 2 (Bloomberg) -- The Hong Kong Monetary Authority cut
its base rate to 3.5 percent after the Federal Reserve lowered
its benchmark by a quarter of a percentage point to 2 percent.
The move matched the Fed's, cutting its base rate by 25
basis points from 3.75 percent, Joseph Yam, chief executive of
the city's de facto central bank told reporters in Hong Kong
today.
``In Hong Kong, there is limited room for deposit rates to
go down further, and this will affect lending rates too as banks
try to maintain the spread,'' Yam said.
The Federal Reserve on April 30 reduced the benchmark U.S.
interest rate and indicated it's ready to pause after seven cuts
since September. Hong Kong's currency is pegged to the U.S.
dollar, which typically means the city's monetary policy follows
that of the Fed.
``The U.S. economy is quite weak and the housing market
there is the key,'' Yam added. ``Energy and commodity prices are
affecting inflation expectations.''
A basis point is 0.01 percentage point.