Banks keep rates steady but one more hike looms

Staff reporter and agencies

Major local banks maintained their prime rates after the US Federal Reserve held off on raising interest rates for a second consecutive policy meeting, but one more hike may still on the table.

The Hong Kong and Shanghai Banking Corporation, Hang Seng Bank (0011), and BOC Hong Kong (2388) kept the rate at 5.875 percent. Standard Chartered Hong Kong also left its rate unchanged at 6.125 percent.

Before the pause, Standard Chartered was said to have raised the capped rate of below-HK$3 million mortgages based on the one-month Hong Kong interbank offered rate by 0.15 percentage points to 4.275 percent.

The move suggested local banks were still under pressure to raise interest rates, said Eric Tso Tak-ming, chief vice president of mReferral Mortgage Brokerage Services. Thus, another hike of 0.125 percentage points is still likely next month, he added.

The Hong Kong Monetary Authority maintained its base rate at 5.75 percent and said it would "closely monitor" market developments and maintain monetary and financial stability.

"It is premature to conclude whether the US rate hike cycle has been completed, and the high interest-rate environment is likely to last for some time", the HKMA said after the Fed's decision.

While warning the Hibor will follow the US interest rate to rise, chief executive Eddie Yue Wai-man said he was not so worried about the impact on the money market.

Fed chair Jerome Powell hinted yesterday that the US central bank may now be finished with the most aggressive tightening cycle in four decades.

"The question we're asking is: Should we hike more?" Powell said after the decision. "Slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more."

Officials signaled in a post-meeting statement that a recent rise in longer-term Treasury yields reduces the impetus to hike again, though they left open the door to another increase. Futures were pricing in a roughly one-in-four chance of another rate hike by January, compared to around 40 percent the day before.

Meanwhile, the Bank of England held interest rates at a 15-year peak as it kept up its fight against the highest inflation among the world's big rich economies, and it stressed that it did not expect to cut them any time soon.

Despite publishing forecasts which now show the British economy skirting close to a recession and flat-lining in the coming years, the BoE held the Bank Rate at 5.25 percent for the second meeting in a row after 14 back-to-back increases. It also reinforced its message that borrowing costs were set to stay high.