Major banks in Hong Kong raised their benchmark lending rates, or prime rates, for the first time in 12 years, and they may do it again by the end of the year, the Hong Kong Economic Journal reports.
The Federal Reserve on Wednesday (Thursday in Hong Kong) lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent, its third rate increase this year.
The US central bank expected another rate hike in December, three more next year, and one increase in 2020 as it forecast that the US economy would enjoy at least three more years of growth.
Several hours after the Fed’s move, the Hong Kong Monetary Authority (HKMA) raised its base rate by 25 basis points (one basis point is equal to 0.01 percent) to 2.5 percent, prompting major local banks to follow suit.
HSBC was the first to announce a new rate, saying it will raise its prime rate by 12.5 basis points to 5.125 percent from Friday, although the increase was smaller than 25 basis points predicted previously by the market.
Also with effect from Friday, HSBC will raise its savings rate for Hong Kong dollar savings deposits to 0.125 percent from the current 0.001 percent.
George Leung Siu-kay, HSBC’s Asia Pacific advisor, said the bank took into consideration several factors in making the decision, RTHK reported.
He said the bank didn’t want to increase the burden on the local economy and society, particularly at a time when the economy is facing uncertainties.
Hang Seng Bank and Bank of China (Hong Kong) announced identical rate hikes soon after HSBC’s announcement.
Standard Chartered Bank (Hong Kong) said it will raise its prime rate to 5.375 percent.
OCBC Wing Hang Bank adjusted its prime rate by 25 basis points, double that seen in other major banks, while DBS Bank (Hong Kong) decided to keep its prime rate unchanged.
The local market is generally expecting banks will raise their prime rates again by 12.5 basis points before the year ends if the Fed continues to tighten its monetary policy.
Commenting on the situation, Financial Secretary Paul Chan Mo-po said Hong Kong’s the super low interest rate environment will soon to be over and will have a negative impact on asset prices.
He urged the public to exercise caution in managing their investments and risks.
HKMA chief executive Norman Chan Tak-lam said chances are high that the Fed will raise its base rate again this year as US economic growth is likely to get a boost from more government financial stimulus, as well as the improving unemployment rate, rising global oil prices, and expected increases in the prices of consumer goods in the wake of the China-US trade war.
That, in turn, may cause interest rates in Hong Kong to gradually go higher, he said.
HSBC’s Leung said local banks are likely to raise their rates again before the year ends in view of another Fed rate hike expected by the end of the year, although he said it is hard to predict how much would be the increase.
In the three most recent rate-hiking cycles in Hong Kong, the biggest accumulated increase was three percentage points, which happened in the cycle between 2005 and 2006.
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