The Monetary Authority has adjusted the Base Rate downward by 25 basis points to 3.5% following the 25 basis-points cut in the US federal funds target rate on April 30.

The authority's Chief Executive Joseph Yam told reporters today the US interest rate outlook is uncertain as the country's economic activities remain weak. US economic growth in the past two quarters stood at only 0.6%. Its tight credit conditions and the deepening housing contraction are likely to weigh on economic growth.

He said local banks will decide on whether to follow suit, adding there is limited room for lowering the deposit rate. Banks will be more cautious under the volatile market conditions.

The Base Rate is the interest rate forming the foundation upon which the Discount Rates for repurchase-agreement transactions through the Discount Window are computed.

The Base Rate is currently set at either 150 basis points above the prevailing US federal funds target rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rate, whichever is higher.