Banks hit home with rate rises

Banks raised prime rates by 0.125 percentage points yesterday, after Hong Kong's de facto central bank increased the base rate in lockstep with the US Federal Reserve.

The Hong Kong and Shanghai Banking Corp took the lead in pushing up its prime rates by 12.5 basis points to 5.875 percent, marking a new high for 15 years.

BOC Hong Kong and Hang Seng Bank followed with increases by a similar margin.

Of the four major banks, Standard Chartered Hong Kong was the last one to announce a one-eighth-point increase in its prime rates to 6.125 percent.

These lenders also lifted their deposit rates by the same amount to 0.875 percent per annum, for the Hong Kong dollar.

Since September, the cumulative prime rate rise has reached 0.875 percent after five adjustments.

After the latest rise, a homeowner carrying a HK$5 million mortgage with a 30-year term needs to repay HK$351 more - hitting HK$22,803 per month, according to mortgage consultant mReferral.

Also, the mortgage-related one-month Hong Kong interbank offered rate reached a nearly 16-year-high of 5.25 percent yesterday, as all maturities rose and stood above 5 percent.

In terms of the Hong Kong dollar, it has risen above the mid-point of its trading band against the US dollar for the first time this year.

That came after the Hong Kong Monetary Authority set its base rate 25 bps higher at 5.75 percent yesterday, closely following a quarter-point hike by its US counterpart earlier.

The Fed yesterday announced the 11th rate hike since last March, and the much-anticipated move took rates to a target range of 5.25 percent to 5.5 percent, the highest since 2001.

However, Fed chairman Jerome Powell said voting committee members may hold the rate steady at the September meeting, but a further rate hike is also possible if necessary, leaving the bulls and bears to make their own bets.

While insisting the next rate decision will be "data dependent," Powell also said the Fed would not start cutting rates this year.

As for any further policy decisions, Powell said they will be made at each meeting, and that only limited guidance about the monetary policy can be offered by officials given the existing circumstances.

HKMA deputy chief executive Arthur Yuen Kwok-hang also said the interest rates are expected to stay high for a period of time and reminded the public to be cautious of the risks when applying for loans.

Fund management by local banks, he said, is smooth and stable and the authority doesn't see any need for special concerns.

Yuen added that part of the Hong Kong dollar fund has been transferred to foreign currencies, but they are still in the city's banking system.

The European Central Bank yesterday announced a 25 bps rise in the key interest rate, putting its deposit rate at 3.75 percent, the highest level since 2000.

Like the Fed, the ECB also said it remains open on future decisions.