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Raising Interest Rate can curb inflation in the US, but may lead to deflation in HK
The FED raises interest rate
On March 16, the U.S. Federal Reserve announced a 0.25% rate hike, which is in line with market expectations. This is the first rate hike since the normalization process of interest rates was stopped in 2019. Even though the rate hike is mild, but the FED announced that there will be another six rate hikes in 2022. It is because of the rapid deterioration of inflation. The latest US inflation rate in February has risen to 7.9%, breaking the record of the past 40 years. Increasing inflation rate is a common phenomenon after the interest rate cut due to the outbreak of COVID-19, many countries have raised interest rates to curb inflation.
Hong Kong follows the US to raise interest rate
The situation in Hong Kong is quite different. The latest reported inflation rate in January was only 1.2% (1.6% in February), the government has even implemented measures to boost the economy, including a distribution of HK$10,000 electronic currency to each adult in Hong Kong. However, based on the linked exchange rate mechanism, the Hong Kong Monetary Authority announced to follow the United States to raise interest rates by 1/4%. Raising interest rate is to cool down the economy so as to curb inflation. It can lead to deflation in Hong Kong as the current inflation rate is relatively low.
