Hong Kong banks hike lending rates for first time in 12 years
Two of Hong Kong's biggest banks raised their lending rates on Thursday
for the first time in 12 years, ending an age of cheap cash that could
hit the city's famously red-hot property market.
The moves by HSBC and Standard Chartered came after the Hong Kong
Monetary Authority -- the city's de facto central bank -- lifted its
borrowing costs following an increase by the US Federal Reserve. The
HKMA is required to lift rates in line with the Fed owing to the dollar
peg.
HSBC boosted its lending rate 12.5 basis points to 5.125 percent, before
Standard Chartered lifted its rate from 5.25 percent to 5.375 percent.
"Today's change in rates marks the start of the normalisation cycle for
local interest rates and we believe Hong Kong is well prepared for the
change," said Diana Cesar, HSBC's chief executive in Hong Kong.
More of the city's commercial banks are expected to follow HSBC's lead
and hike their prime rates, meaning higher mortgage payments for loans
that are linked to it.
The Federal Reserve raised the benchmark interest rate on Wednesday for
the third time this year in a widely anticipated decision, citing the
strong US economy and jobs market.
After the HKMA raised interest rates to 2.5 percent, its chief executive
Norman Chan warned the public to be "on high alert" over increases and
to manage associated risks, adding that property and assets would be
affected.
"The current global economic conditions and financial environment are full of uncertainties for Hong Kong," he said.
Hong Kong's finance secretary Paul Chan wrote in his blog earlier this
week that the city's low interest rate environment was "coming to an end
soon".
"According to some market figures, the property market has shown signs
of cooling over the last few weeks with both prices and volume of
transactions falling," he wrote, adding that residents should be
vigilant about the risk of a possible downturn in the housing market.
The HKMA has spent billions this year supporting the currency as it hits
the bottom end of its permitted HK$7.75-7.85 band against the US
dollar.
That has dented the huge well of cash in the city's banking system that
previously kept the crucial Hong Kong InterBank Rate (HIBOR) subdued.
Under the Linked Exchange Rate System, the authority is required to buy
the local currency at HK$7.85 to US$1 if local banks request it.
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