Hong Kong keeps base rate steady at 5.75%, giving businesses, homeowners a leg up while city’s economy regains strength
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Hong Kong’s monetary authority kept its key interest rate unchanged in lockstep with the “dovish pivot” by the US Federal Reserve, sparing the city’s businesses and homeowners from higher borrowing costs while the economy regains strength.
The Hong Kong Monetary Authority (HKMA) maintained its base rate at 5.75 per cent on Thursday, according to statement from the de facto central bank. Hours earlier, the Fed left its target rate in the 5.25 per cent to 5.5 per cent range in what the market called a “dovish pivot.” It was the third pause since the Fed began its rate-hike cycle in March 2022.
The HKMA follows the Fed in lockstep since 1983 on interest rates policy by design under its linked exchange rate system to preserve the local currency peg to the US dollar.
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“The pause will only be a temporary respite for borrowers and companies because interest rates have already climbed to a high level,” said Edmund Wong Chun-sek, who represents the accountancy constituency in the local Legislative Council. “The government will need to take more measures to stimulate the economic recovery.”
Hong Kong home prices at lowest level since 2017 amid high interest rates
Hong Kong home prices at lowest level since 2017 amid high interest rates
The Fed’s Chairman Jerome Powell had hinted that he may now be done with the US central bank’s most aggressive tightening cycle in four decades, Bloomberg reported.
“The question we’re asking is: Should we hike more?” Powell told reporters during a press briefing after the Fed’s decision. “Slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more.”
The HKMA last tightened in July, when it lifted the base rate by 25 basis points to 5.75 per cent, the highest level since December 2007. In total, the base rate has risen by 525 basis points since March 2022, even while Hong Kong’s economy was mired in a recession.
“Officials believe the recent tightening in financial conditions lessens the need for further hikes [for now],” Mansoor Mohi-uddin, chief economist at Bank of Singapore, said before the Fed decision, referring to the recent spikes in US government bond yields. “The Fed will stay hawkish and warn rate hikes may still be needed in future to curb inflation.”
Looking forward, one more hike remains possible, according to Jacky Lam, financial consultant at Charles Schwab Hong Kong, before Thursday’s decision. Central bankers must tread lightly “as one hike too many could be the straw that breaks the camel’s back”, he said.
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The focus will be on whether local lenders will tinker with their prime rates. HSBC, its Hang Seng Bank subsidiary, and Bank of China (Hong Kong) currently charge their best customers 5.875 per cent for loans. Standard Chartered, Bank of East Asia and others charge 6.125 per cent.
HSBC, Standard Chartered, Bank of China and four other lenders raised their mortgage rates for new loans by 50 basis points in September, when the Fed and HKMA paused.
“It is estimated that even if the Fed does not raise interest rates this time, banks in Hong Kong are still under pressure to raise the prime rates by 12.5 basis points” due to elevated funding costs in the interbank market, said Eric Tso Tak-ming, chief vice-president of mReferral, a mortgage broker.
Hong Kong’s one-month interbank offered rate, or Hibor, stood at 4.876 per cent on Wednesday versus 3.686 per cent in late September. The three-month Hibor rose to 5.226 per cent from 4.446 per cent over the same period, according to data published by Hong Kong Association of Banks.
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