"Hong Kong's liquidity isn't tight, so there is no need for us to follow the US rate cut," Yam said.

The base rate, a useful indicator of interest rates in the city, is the interest rate the HKMA charges banks when licensed banks are short of liquidity. It is set automatically 150 basis points above the Fed funds target rate.

The base rate will remain unchanged at 6.75 percent, although the discount rate was cut by 50 basis points to 5.75 percent by the Federal Reserve Board in a surprise move on Friday.

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Given the Hong Kong dollar peg to the US dollar, it has been usual practice that HKMA will follow the Fed's monetary policy changes. Yet many market watchers have said the adjustment on Friday was far from a policy change as the Fed only trimmed the discount rate.

The Fed cited increased "downside risks to growth" as the catalyst for the adjustment.

Some market watchers view the Fed's move as a signal of a looming interest rate cut in the United States, but Yam would not be drawn into crystal- gazing.

He said it was too early to predict the direction of the US benchmark lending rate.

"One should not make a judgment about US interest rate changes too soon. It still comes down to the interest rate meeting [next month]," Yam said.

The Federal Open Market Committee is scheduled to discuss interest rate direction in a meeting on September 18.

"In the long run," Yam said, "we'd have to watch closely the US Fed funds rate for movement of Hong Kong dollar interest rate and exchange rate."

Heavy volatility on Friday sparked the selling of Hong Kong dollars as investors fled to safer assets, causing the Hong Kong dollar to slide briefly below the official peg rate of HK$7.8000.

Yam said there is little for local investors to worry about with regard to Hong Kong.

He emphasized that there is still plenty of liquidity in the local markets, and the Hong Kong interbank offered rate, or HIBOR, as well as Hong Kong dollar exchange rate all remained stable despite the turbulence.

However, once again he urged investors to exercise caution in the prevailing volatile environment.