The Monetary Authority of Macao (AMCM) raised the Base Rate of the Discount Window today (14 December 2017) by 25 basis points to 1.75%. It has been the fifth time for the AMCM to raise the policy rate since December 2015.
As the pataca is linked to the Hong Kong dollar, the movements of policy rates in Hong Kong and Macao should be basically consistent in order to maintain the effective operation of the linked exchange rate system between the two SARs. As a result, the AMCM raised the Base Rate by 25 basis points, following the Hong Kong Monetary Authority. Meanwhile, since the Hong Kong dollar is linked to the US dollar under the linked exchange rate system, the rate hike action of Hong Kong was attributed to the decision of the US Federal Reserve to raise the Fed funds rate target range by 25 basis points on 13 December (US time).
In recent months, money market rates in Macao have been trending up and pataca liquidity has been contracting. The pressure of local banks to raise interest rates at the retail level has been accumulating owing to rising fund costs in the money market. Hence, the possibility of uplifting loan and deposit interest rates by Macao banks cannot be ruled out in the foreseeable future. Nevertheless, individual banks would adjust their retail interest rates according to their commercial decision.
Amidst the up-cycle of interest rates, the SAR Government would like to remind the public to be alerted to the potentially enlarging volatility of the real estate market, assess prudentially their financial positions, especially the additional burden on mortgage payments due to rising interest rates, act within their means for property purchases and manage the risks well. Meanwhile, Macao banks should manage the potential risks brought about by interest-rate adjustments.