Top lenders stay on hold after rate cut

Top News | Stella Zhai and Agencies 20 Sep 2019

The Hong Kong Monetary Authority cut its benchmark interest rate by 0.25 percentage points to 2.25 percent, in line with the US Federal Reserve's action to decrease the rate by 25 basis points.

Major lenders in Hong Kong stayed on hold. HSBC kept its best lending rate at 5.125 percent while reducing the US dollar saving interest rate from 0.25 percent to 0.1 percent.

Bank of China (Hong Kong) and Hang Seng Bank both announced their HK dollar prime rate and savings deposit rate remain unchanged at 5.125 percent and 0.125 percent, respectively.

Standard Chartered Hong Kong also maintained its best lending rate at 5.375 percent, with its HK dollar saving interest rate stable at 0.125 percent.

The Fed cut rates "to provide insurance against ongoing risks" such as weak global growth and the Sino-US trade war.

"If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate," US Fed chair Jerome Powell said, while signaling a higher bar to further reductions in borrowing costs.

Standard Chartered expects there is less chance that local banks will follow the Fed and HKMA to cut the interest rate, given a rising liquidity demand from initial public offerings and upcoming seasonal settlements, with the local bank system balance of HK$54 billion currently.

The market expects a 40 percent chance that the Fed will cut the interest rate again between next month and December, the bank said.

The Fed's cut may not have a direct impact on Hong Kong as HK dollar interest rates have been lagging US dollar interest rates, HKMA chief Norman Chan Tak-lam said, adding that banks do not necessarily need to follow the Fed because they have their own funding considerations. HSBC and Bank of East Asia are among lenders that have recently raised mortgage loan rates.

"It is worth noting that Federal Open Market Committee Members' forecasts on interest rate outlook by the end of this year are clearly divided," Chan said.

He said seven members predicted one further rate cut, five predicted no change, and another five predicting a rate hike.

FOMC's divided views on short-term interest rate outlook are rather unusual as the US economy is still growing reasonably well, Chan said.

The overnight tenor of the Hong Kong interbank offered rate fell to 0.33 percent yesterday, its lowest since January, but was little changed along the rest of the curve.

The Hibor is closer to that of the US compared with a year ago, and one-month Hibor has dropped to around 2 percent, said Chan.

Chan said short-term interest rate movements are affected by changes in supply and demand of HK dollar funding, though HK dollar interest rates should track US dollar interest rates in the longer run.

"Given the uncertainties about the interest rate outlook in the United States, the public should continue to manage risks prudently," he added.

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