Date
23 March 2017
Fed Chair Janet Yellen has been signaling a more hawkish stance amid improving US economic data. Photo: Reuters
Fed Chair Janet Yellen has been signaling a more hawkish stance amid improving US economic data. Photo: Reuters

Why US tightening may not hurt HK home prices now

Market participants are factoring in a 90 percent chance for a March rate hike by the US Federal Reserve, as indicated by latest Fed funds futures.

It is generally expected that the central bank will raise rates three times this year.

The Fed shifted towards a hawkish stance recently amid improving economic data and stronger inflation.

Also, sustained strength of the US stock market may be another factor that is encouraging authorities to accelerate the tightening pace.

Historically, a sudden rally in stock markets typically led to higher inflation and vice versa.

Although US is speeding up its tightening move, Hong Kong continues to benefit from fund inflows.

That is because money is still coming in from China, as mainlanders seek overseas assets amid fears of further slide in the renminbi’s value. 

Given ample liquidity and the fact that most mortgage loans in Hong Kong are priced against Hong Kong Interbank Offer Rate (Hibor), Hong Kong banks are not likely to follow the US this time.

As such, together with the fact that the absolute interest rate is still low compared with the inflation rate, the local housing market may not be much affected by the US rate hike this time.

What can change this situation?

Well, according to me, the situation will change only if the Fed launches stronger-than-anticipated rate moves or starts selling treasury bonds to mop up the liquidity it has created through several rounds of quantitative easing.

Such moves will have stronger impact on Hong Kong’s monetary base, in turn affecting local rates and home prices.

This article appeared in the Hong Kong Economic Journal on March 9

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal chief economist and strategist

EJI Weekly Newsletter

Please click here to unsubscribe