THE Hong Kong Monetary Authority cut its benchmark base interest rate half a percentage point to 6.25 percent today after the US Federal Reserve cuts its key interest rate by the same amount.

Hong Kong's currency is pegged to the US dollar, and the HKMA usually follows in lockstep any US interest rate adjustments.

Overnight, the US Fed reduced the target for its federal funds rate, the rate at which banks lend to each other short term, to 4.75 percent from 5.25 percent.

Hong Kong's stock market rallied on the news of the Fed's larger-than-expected cut, with the benchmark Hang Seng index up 928.45 points, or 3.78 percent, to 25,505.3.

The HKMA has pledged to keep its base rate -- the reference rate for the lending of overnight funds to local banks through its discount window -- fixed at least 1.5 percentage points above the federal funds rate.

Last month, the HKMA didn't follow the Fed's move to cut its discount rate -- an emergency source of funding for banks direct from the Fed -- by half a percentage point to 5.75 percent, saying the move didn't directly apply to Hong Kong policy.

It is up to individual banks to decide whether to change their deposit or lending rates in response to any interest rate changes by the HKMA.

Local banks are expected to announce their decisions sometime today.

(Agencies)