The Hong Kong Monetary Authority (HKMA) on Friday announced it had cut its base rate by 25 basis points to five percent with immediate effect.

The base rate is the benchmark for repo transactions under the discount window.

The HKMA said it cut the rate in response to an overnight cut in the US federal funds rate.

In response, HSBC and Bank of China said they would cut their best lending rates by a quarter of percentage point to 5.375 percent from Monday.

Overnight, the US Federal Reserve announced a rate cut of a quarter of a percentage point after policy-makers voted unanimously to lower the rate to between 4.50 and 4.75 percent.

In a statement, the HKMA said the pace of Fed rate cuts was still uncertain, posing a risk to global financial market volatility.

"The rate-cut cycle in the US is still at its initial stage. Interest rates might still remain at relatively high levels for some time. The public should carefully assess and continue to manage the interest rate risk when making property purchase, mortgage or other borrowing decisions," the authority said.

Under the Hong Kong dollar peg mechanism, interest rates move in lockstep with the US.

Mackie Lau, Standard Chartered's co-Head of Treasury Markets in Greater China, North Asia and Hong Kong, said Donald Trump's proposed economic policies might affect the Fed's moves to tamp down inflation.

Trump's plan includes tax cuts, tariffs and a mass deportation of illegal immigrants.

"Once Trump really starts to take office and begins to roll out his policies, that's the time when the market will begin to be more concerned with what will happen to the economy," Lau told an online press call.

"I think we will need at least three, six months before that will all come through. Of course, the worry is that rates might have to reverse course and go higher because of the worry about inflation, but that's more for the longer term."