Japan’s Nikkei 225 (N225) was up 1.4% and Korea’s Kospi (KOSPI) was up 1.3%. China’s Shanghai Composite (SHCOMP) rose 0.2%. Hong Kong’s Hang Seng Index (HSI) opened 1% higher, but soon reversed gains and fell 0.5% from the previous day’s close.
According to the Fed’s decision, the Hong Kong Monetary Authority (HKMA) on Thursday raised its policy rate by 75 basis points to 2%.
Hong Kong’s monetary policy moves in the same direction as the Fed, as its currency is pegged to the US dollar in a tight range. The city is forced to raise rates to prevent rising outflows as the Fed tightens.
But rising interest rates could also derail Hong Kong’s still fragile economic recovery from the Covid-19 pandemic. Last month, the city lowered its growth forecast for 2022 to a range of 1% to 2%, from 2% to 3.5% previously.
HKMA President Eddie Yue said on Thursday that widening interest rate differentials between the U.S. and Hong Kong markets could lead to an increase in the city’s outflows, but Hong Kong has high liquidity in the banking system and strong capital pads.
US equities closed higher on Wednesday after the Federal Reserve announced it would raise interest rates by an aggressive three-quarters of a percent.
Dow futures continued to rise in Asian trading hours on Thursday, 0.5%. Nasdaq futures were up 0.7%, while the S&P 500 futures were up 0.6%.
Wednesday’s rate hike, the biggest in 28 years, told investors the Fed is committed to lowering inflation rates. Fed Chairman Jerome Powell said a similar rise could occur in July if economic data does not improve.
“Given the persistence of inflation and the Fed’s decision to reduce it, it seems likely that the July meeting may see another 75 [basis-point] rate hike, “Kerry Craig, global market strategist at JP Morgan Asset Management, said in a note Thursday.
“As in other parts of the world, Asian emerging markets are unable to escape inflationary pressures, especially rising food prices, and we expect a tightening of policy on Asian central banks in response.” he said.
– Nicole Goodkind of CNN Business contributed to this report.