Fed’s hike triggers rate increases, stock market rout across major economies

Stock markets in the region took a beating on Thursday after the US Federal Reserve

raised its short-term borrowing rate by 75 basis points

to a target range of 3.75 per cent to 4 per cent, the highest level since 2008.

It was the fourth time the central bank had hiked rates this year, and it warned that further hikes could be on the cards in the near term.

Here is how three major economies have responded to the Fed hike:

Malaysia

The country’s benchmark stock index fell 2.2 per cent on Thursday following the Fed’s rate hike, and after the Malaysian central bank also

raised the overnight policy rate by 25 basis points

to 2.75 per cent.

The move came weeks ahead of a general election where rising living costs and the weak ringgit will emerge as key issues for voters. Pressure is rising for the central bank to keep inflation in check while supporting growth as campaigning heats up for the Nov 19 nationwide vote.  

The US Fed’s aggressive tightening has led to a persistently strong US dollar environment, affecting major and emerging market currencies including the ringgit, said Bank Negara Malaysia. The ringgit hit a new 24-year low, just ahead of the interest rate hike on Thursday. BLOOMBERG

Hong Kong

The Hang Seng Index fell 3.1 per cent at the market close on Thursday. Earlier in the day, the Hong Kong Monetary Authority

raised its benchmark interest rate by 75 basis points to 4.25 per cent,

hours after the Fed did the same. Hong Kong’s de-facto central bank raises rates in tandem with the Fed, given the local dollar’s peg to the US dollar, and has done so six times this year.

Higher borrowing costs add to headwinds facing Hong Kong’s economy, which has been buffeted by weak global demand, a slow reopening after years of pandemic isolation, and a talent exodus amid political turmoil.

Officials announced this week that gross domestic product shrank 4.5 per cent in the third quarter, far worse than expected, and Hong Kong seems likely headed for its third annual contraction in four years. BLOOMBERG

Britain

The Bank of England (BOE)

raised interest rates to 3 per cent on Thursday from 2.25 per cent,

its biggest rate rise in 33 years, and said that Britain has already entered a recession that could potentially last two years - longer than during the 2008-09 financial crisis.

The central bank forecast that inflation will hit a 40-year high of around 11 per cent during the current quarter.

It also estimated that Britain’s economy entered recession in the third quarter of 2022 and that the recession will last until the middle of 2024, causing the economy to shrink by 2.9 per cent.

Unemployment would rise steadily to 6.4 per cent by late 2025, up from 3.5 per cent now, its lowest since the mid-1970s. REUTERS