Hong Kong in lukewarm response to European Central Bank rate cut
Hong Kong investors reacted nonchalantly to the ECB's decision to cut rates close to zero and pump prime a low-cost lending programme designed to help the beleaguered euro zone after five years of economic stagnation.
Hong Kong investors reacted nonchalantly yesterday to the European Central Bank's decision on Thursday to cut rates close to zero and pump prime a low-cost lending programme designed to help the beleaguered euro zone after five years of economic stagnation.
While major European bourses all rallied on Thursday on the news, the Hang Seng Index closed down 57 points or 0.23 per cent yesterday.
Of more immediate interest for local investors and businesses will be the euro. It dropped to a 13-month low against the Hong Kong dollar and looks likely to stay there given expectations for a US rate increase early next year.
A cheaper currency will be popular with exporters to China and make European assets more attractive for local investors. The structural changes needed to improve euro zone corporate profitability will take longer.
"What the rate cut has done is to put a floor under expectations for the euro-zone economy. It's not going to be the trigger for a dramatic turnaround," said Tim Condon, Asian chief economist at ING Financial Markets.
Economists argue that monetary policy only goes so far and European countries need further labour market and tax reforms to boost supply-side growth or risk a prolonged, multi-decade slump. New ECB forecasts predict gross domestic product growth this year of 0.9 per cent, picking up to 1.6 per cent next year.
