The Hong Kong Monetary Authority has warned of capital outflow as the city’s currency is set to weaken.
In issuing the warning, the de facto central bank noted that the normalization of the interest rate environment has begun, although the US Federal Reserve on Wednesday decided the leave the benchmark interest rate unchanged, the Hong Kong Economic Journal reported on Friday.
Hang Seng Bank Ltd. (00011.HK) executive director Andrew Fung Hau-chung said the Fed’s determination to continue with the rate hike cycle is clearly shown in its statement after the meeting the rate-setting committee, although it recognized the downside risks in the economy.
Fung expects the US to raise the fed fund rate twice this year, with Hong Kong interest rates likely to remain flat or to increase only once, depending on the level of capital flight and speculation over the value of the Hong Kong dollar.
There is a 50 percent chance that the US will again raise interest rates in September, based on the pricing of interest rate futures.
In Hong Kong, the interest rate is likely to rise when the interest spread between the prime rate and the Hong Kong interbank offered rate narrows to 25 basis points, said the head of research at Shanghai Commercial Bank Ltd.
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