* HKMA cuts base lending rate by quarter point to 2.25%
* Hong Kong moves in lock-step with Fed as HKD pegged to greenback
* C.bank says working to ease financing costs on smaller firms
* Local economy on brink of recession amid trade war, protests (Adds HSBC rate decision, chart, finance official’s comments)
By Noah Sin
HONG KONG, Sept 19 (Reuters) - Hong Kong’s central bank lowered interest rates on Thursday in step with a rate cut by the Federal Reserve, just as months of anti-government protests and fallout from U.S.-China trade tensions start to take a toll on the economy.
The city’s monetary policy has to follow the United States’ as its currency is pegged to the greenback.
The Hong Kong Monetary Authority (HKMA) lowered its base rate charged through the overnight discount window by 25 basis points to 2.25% after the Fed cut by the same margin.
The Fed cut rates on Wednesday “to provide insurance against ongoing risks” such as weak global growth and the Sino-U.S. trade war. The HKMA also followed the Fed to cut rates for the first time since the 2008/09 global financial crisis last month.
Thursday’s cut comes after more than 100 days of anti-government protests in the city, with violence and police response escalating over the summer. That has added to pressure from the trade tensions on the Hong Kong economy.
HKMA’s chief expressed hopes for the city to return to calm.
“I hope we can restore order as soon as possible, to allow commercial, economic and financial activities to carry on as normal,” HKMA chief executive Norman Chan told reporters on Thursday. “This can help Hong Kong better deal with the overall difficult circumstances.”
Chan said HKMA is working with the banking industry to alleviate pressure on financing costs of small- and medium-sized enterprises. Hong Kong’s economy is expected to slip into recession in the third quarter.
To ease the economic pain, the Hong Kong government could beef up the HK$19.1 billion ($2.44 billion) relief package it announced last month, Financial Secretary Paul Chan signalled on Wednesday.
“We are actively assessing the economic situation. If needed, we will push out some more measures,” he told Global Times, a tabloid by the Chinese Communist Party’s official People’s Daily newspaper.
Banks in Hong Kong will decide whether to follow suit and trim commercial interest rates, which would affect mortgages in the city’s housing market - one of the least affordable in the world.
HSBC announced hours after the HKMA decision that it was keeping its benchmark best lending rate at 5.125%.
“In the longer run, Hong Kong interest rates should track U.S. dollar interest rates,” HKMA’s Chan told reporters earlier on Thursday. “But short-term interest rate movements are affected by supply and demand in Hong Kong dollar funding.”
Such dynamics are often driven by large initial public offerings in Hong Kong like the $6.6 billion listing of Brewer Anheuser-Busch InBev NV’s Asia business this week.
The overnight tenor of the Hong Kong Interbank Offered Rate fell to 0.33% on Thursday, its lowest since January, but was little changed along the rest of the curve.
The Hong Kong dollar was last seen at 7.8279 per dollar, 0.03% firmer on the day. It is pegged to the U.S. dollar at 7.75-7.85 per dollar.
($1 = 7.8265 Hong Kong dollars)
Editing by Jacqueline Wong