The head of the Hong Kong Monetary Authority (HKMA), Eddie Yue, said on Thursday that he expects interest rates in the SAR to stay high for a while, despite a decision overnight by the US Federal Reserve to hold rates for the first time in more than a year.
Speaking to reporters after the HKMA announced a hold on its own rates, at 5.5 percent, Yue said the Fed was merely taking a pause in its rate hike cycle and there could be one or two more increases down the road.
Yue also said demand for the local currency may increase as the peak season for dividend payment arrives and that could push lending costs higher. He did not rule out the possibility that the gap between US and Hong Kong interest rates would narrow further or even rise beyond the greenback.
"This high interest rate environment, actually, may last for a while and there may be ups and downs in the meantime in terms of interest rates offered by banks. So for people who plan to buy property or take out loans, they need to carefully manage the interest rate risk"
Yue said there is still abundant funding supply for banks although the overall aggregate balance. The aggregate balance, the key measure of liquidity in the local banking system, has fallen after the HKMA intervened more than 40 times to maintain the currency peg.
However, Yue noted that the aggregate balance remained at more than $40 billion when compared to the usual under $10 billion dollar-level before quantitative easing in the US.
Leading local banks HSBC, Standard Chartered and Bank of China (Hong Kong), meanwhile, are keeping their prime lending rates unchanged.
Speaking overnight, the US Federal Reserve chief, Jerome Powell, said pause was out of caution to allow the Fed to gather more information before determining if rates do need to rise again, with the pace of its moves now less important than finding a proper endpoint that slows price increases while minimising any rise in unemployment. (Additional reporting by Reuters)
Last updated: 2023-06-15 HKT 17:34