TOKYO -- Asian shares were lower Thursday morning, after the U.S. Federal Reserve raised its main interest rate by 0.25 percentage point overnight and surprised the market with a more hawkish tone on future actions as the American economy gains momentum.
Following the Fed's move, Hong Kong's de facto central bank raised the city's base lending rate 25 basis points to2.25% with immediate effect on Thursday, but China's central bank left its rate on interbank loans unchanged.
The Korea Stock Exchange's KOSPI index fell 1.46% at 2432.75 at 2:54 GMT, while Hong Kong's Hang Seng index was 0.46% lower at 30,585.11 at 2:38 GMT. The Shanghai Stock Exchange Composite index was off 0.2%, at 3,043.70 as of 2:44 GMT. The Stock Exchange of Thailand slipped 0.43% to 1,710.83 in morning trade.
"The Fed's upward projections of economic forecasts for not just this year and the next, as well as the news conference, are rather hawkish," said Trinh Nguyen, a senior economist at Natixis, predicting more pressure on Asian economies as central banks try to defend their currencies against the dollar.
South Korea's Vice Finance Minister Ko Hyoung-kwon said after a policy meeting in Seoul on Thursday that the government has "various tools ready to prepare for higher interest rates," Reuters reported. Norman Chan Tak-lam, head of the Hong Kong Monetary Authority, said it was a matter of time before commercial banks raise their prime rates, which could push up borrowing costs in property markets and create volatility in asset prices.
Countries such as the Philippines, Indonesia and Malaysia, which have seen strong inflows of portfolio investment, will come under more pressure to take action, Nguyen said, as stronger U.S. growth and higher interest rates mean that share valuations will have to be attractive retain foreign investors and entice new ones.
While these countries have not yet responded to the Fed's move, some central banks have gradually reduced their foreign reserve holdings and raised interest rates since the beginning of the year.
The foreign exchange reserves of Bank Indonesia, the country's central bank, fell by about 7% from January to May, to $122.9 billion. The decline is mainly due debt servicing and the bank's efforts to stabilize the rupiah, which continues to weaken against the dollar. Reserves in the Philippines also fell to $79 billion in May from $81 billion in January.
On the other hand, Malaysia has been building up its foreign exchange reserves, which reached the highest level in about three years in April.
AKANE OKUTSU contributed to this report.