Fed move spurs reduction, propels stock index past 25,000
Hong Kong banks yesterday followed the United States Federal Reserve in cutting interest rates, with analysts expecting more reductions before the end of the year as further efforts are made to fight a global credit crunch.
Despite earlier speculation they would not follow the Fed in lowering borrowing costs, local banks slashed their best lending rates 25 basis points, the first such reduction in 10 months. Still, it was less than a bigger than expected cut of 50 basis points by the US central bank.
The blue-chip Hang Seng Index surged to a record high above 25,000 points on the news as investors piled into property plays and trading turnover reached a historic high.
Hong Kong rates generally march in tandem with those in the US due to the local dollar's peg to the greenback, but this time some investors expected local banks to hold off amid high liquidity in the system.
Analysts believe the city's lenders will continue to cut rates, with the Fed likely to announce another cut of 25 basis points next month.
