Local banks stay put as Fed raises rates

The Hong Kong Monetary Authority raised its benchmark interest rate in line with the US Federal Reserve yesterday in a move that's likely to have little immediate impact on the real cost of borrowing, which has almost halved in the past two months.

Major banks, however, left their prime rates unchanged.

The HKMA increased the base rate to 5 percent yesterday after the Fed boosted its rate by the same magnitude, the city's de-facto central bank said in a statement.

Hong Kong's rate moves in lockstep with the Fed's due to the local currency's peg to the greenback.

"The job is not fully done," Fed chair Jerome Powell said. "While recent developments are encouraging we will need substantially more evidence to be confident that inflation is on a sustained downward path."

HKMA chief executive Eddie Yue Wai-man predicted Hong Kong's interest rate will remain at a high level this year as Fed is unlikely to reduce its rates in 2023, and reminded Hongkongers of rate risk management in terms of home mortgages or other borrowings.

Meanwhile, the one-month Hong Kong interbank offered rate, which is linked to mortgage loans, has fallen to 2.66 percent from a 15-year high of 5.08 percent in early December, signalling plentiful liquidity and still weak demand for loans.

The Hongkong and Shanghai Banking Corporation kept its prime rate unchanged at 5.625 percent, followed by other major local lenders Hang Seng Bank (0011) and BOC Hong Kong (2388), while Standard Chartered Hong Kong also said its prime rate will stay at 5.875 percent.

Hong Kong's mortgage consultant mReferral said the unchanged prime rates mean there is no additional burden on homeowners who are repaying a mortgage, which will have a positive impact on the local property market, in addition to the possible boost from the reopened border with the mainland.

The number of mortgage cases with negative equity in Hong Kong soared 22 times quarterly to over 12,000 as of the fourth quarter of last year, due to a 15 percent decline in home prices last year.

But Yue said he is not too concerned that high interest rates will affect the repayment ability of homebuyers, as the ratio of bad loans still remains low, accounting for only 0.06 percent of the entire mortgage market in Hong Kong.