Complacency danger in rates slow boil

Editorial | Mary Ma 28 Sep 2018

The rate wolf has finally emerged from the woods. The only thing is it is a cub - not an adult wolf.

Our bankers must be kidding. No wonder, the "negative" news was instantly hailed as positive by developers saying it's going to have little impact on the record home prices.

Would mainland developer Vanke Property regret pricing its Tuen Mun project, Le Pont, below HK$10,000 per square foot? I don't think it should because, even though the price marks a recent low in the primary market, it's still very expensive.

Except for a handful of small banks brave enough to raise the prime rate by 0.25 percentage point, all major lenders - including HSBC, Bank of China, Standard Chartered and Hang Seng Bank - are limiting their increases to only 0.125 percentage point.

The wolf cub may be viewed in at least two perspectives. One, bankers were reluctant to raise interest although the United States has done so eight times. But, however unwilling, they felt obliged to at least do something to appease the government, in light of the pre-hike rhetoric of Financial Secretary Paul Chan Mo-po, and Monetary Authority chief Norman Chan Tak-lam.

That's probable as the impact of 0.125 percentage point is nominal more than material.

The problem, however, is such reading could be too optimistic, since a step too little could signal a future gloomier than what we've been able to imagine. Otherwise, the major banks would have taken a bigger step to normalize the interest environment.

George Leung Siu-kay, an adviser to HSBC Asia Pacific, was straightforward on that, although the market didn't pay due attention.

Leung said the baby step has taken in account uncertainties of the global economy, including the Sino-US trade wars.

"I think we have to be very cautious in order not to increase the additional burden on the local economy and society, particularly when the economy in future is highly uncertain, and most likely on the downside," Leung had said.

Yes, the negatives have been on the rise.

Officially, the environment of extraordinarily low interest rates has come to an end after this increase - the first in Hong Kong in 12 years. Meanwhile, the mainland is under pressure to fend off the economic attacks from US President Donald Trump. While China has vast foreign exchange reserves, a huge slice has been committed to financing expensive "Belt and Road" projects.

As far as potential home purchasers are concerned, Leung and his banking peers could be misleading them by trying to play nice. If they are foreseeing dangers ahead, their baby act would send homebuyers a wrong signal.

Rather than cautioning, they're shielding the buyers from the imminent danger as in the case of the boiling frog, a fable describing a frog being slowly boiled alive.

The premise is that if a frog is suddenly put into boiling water, it will instinctively jump out. But if it's put in tepid water, which is then heated slowly, it wouldn't perceive the danger until it's cooked to death.

So, beware of the toads hiding the truth of the situation.

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