Interbank rate rise shadows property

Hong Kong's interbank rates rose above 4 percent as the US Federal Reserve warned there would be another two hikes in interest rates this year.

That poses further uncertainty to the lackluster property market.

Interbank borrowing costs have been rising due to seasonal demand as the half-year point nears, and yesterday saw the overnight Hong Kong interbank offered rate - Hibor - climb to a three-week high of 4.25 percent.

And the mortgage-linked one-month Hibor jumped to 4.75 percent, up for a seventh consecutive day. But that is still below its US dollar counterpart, last seen at 5.16 percent.

The 12-month Hibor also reached a five-month high of 4.96 percent.

This came as major lenders in the city said they would hold to prime lending rates after the Hong Kong Monetary Authority maintained a base rate at 5.5 percent following a similar move by the Fed to pause interest rate hikes.

Hong Kong's monetary policy moves in lockstep with the Fed as its currency is pegged to the greenback.

The Hongkong and Shanghai Banking Corp, Hang Seng Bank and Bank of China (Hong Kong) will keep prime rates at 5.75 percent while Standard Chartered Hong Kong's best lending rate will hold at 6 percent.

But experts warn there may a further rise in prime rates. Eric Tso Tak-ming, chief vice president of mReferral Mortgage Brokerage Services, said with the pressure of increasing capital costs some SAR banks may need to hike prime rates by 0.125 percentage points.

Hibor will likely remain elevated and could be above 5 percent in the short term, Tso added.

HKMA chief executive Eddie Yue Wai-man said on Wednesday that Hibor may overshoot US equivalents in the coming weeks or months due to seasonal factors.

Although the tentative pause in interest rates gives breathing room to mortgage holders, William Kwok Tze-wai, chief manager of sales at CK Asset, expects more prospective homebuyers to take a wait-and-see attitude amid uncertainty over whether the US rate-hike circle is close to an end.

Fed officials signaled two additional quarter-point rate hikes or one half-point increase this year.

Citigroup, meanwhile, says the United States may cut rates at the end of the year at the earliest.

This came as the European Central Bank increased interest rates by another quarter-point to 3.5 percent yesterday, the highest in 22 years, and signaled more hikes.

caroline.zheng@singtaonewscorp.com