Hong Kong's financial officials warn borrowers to brace for a delay in the cost of funding
Hong Kong's financial officials said the public should brace for a time lag between their funding costs and the city's base interest rate, as they cautioned against profligate borrowing amid a lacklustre economic growth.
The warnings followed the half-point cut in base rate by the Hong Kong Monetary Authority (HKMA), in lockstep with the larger-than-expected move by the US Federal Reserve overnight.
Hong Kong's base rate fell to 5.25 per cent, the first decline in four years. All eyes are now on the city's commercial banks to see if they will cut their prime rates and pass the savings on to their best customers.
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The pace of cuts in the prime rate used by the city's commercial banks "may be slower" than those in the US because the adjustments "are based on fund flows and other factors," said Financial Secretary Paul Chan Mo-po.
Howard Lee, acting chief executive officer of the Hong Kong Monetary Authority (HKMA), during a press briefing on September 19, 2024. Photo: Enoch Yiu alt=Howard Lee, acting chief executive officer of the Hong Kong Monetary Authority (HKMA), during a press briefing on September 19, 2024. Photo: Enoch Yiu>
Multiple factors affect the pace of cuts: US inflation, changes in market conditions, labour markets and how America's economy reacts to the rate cuts, said HKMA's acting chief executive Howard Lee.
"When [the commercial banks of] Hong Kong do start to cut the [prime] rate, it will be positive for local businesses, and be supportive to our capital markets", Chan said. "The rate cut overnight in the US has started a new round of rate-cut cycle."
"The market is likely to remain very sensitive to economic data and political and economic risk, [so] investors should stay alert to the risk of global financial market volatility", Lee said during a press briefing after the HKMA's rate announcement.
Longer-term rates in the interbank market will "closely follow" their US dollar counterparts, but the city's shorter-term interbank offered rates, known as Hibor, will be affected by money supply and stock market activities, he said. Commercial banks will decide if they need to adjust their prime lending and deposit rates based on their own funding costs and business models, he said.
"A 50-basis point rate cut will definitely provide more room than a 25-basis point rate cut for commercial banks", Lee said.
Still, "interest rates will remain at relatively high levels in the foreseeable future and the risk of global financial market volatility could not be ruled out", Lee said. "The public should carefully assess and continue to manage the interest rate risk when making property purchase mortgages or other lending decisions."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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