HKMA raises rates after US Fed move, reiterates warning to home buyers
Base rate rises by 0.25 percentage points, tracking Fed move
COMMENTS: 8
Alun John
The Hong Kong Monetary Authority raised its base rate by 0.25 percentage points on Thursday morning following the US Federal Reserve’s overnight move.
In announcing the decision, HKMA chief executive Norman Chan Tak-lam reiterated his warning to Hong Kong home buyers that mortgage rates will rise in the near future.
“This is the Fed’s third increase in seven months, and is a sign that the pace of rate normalisation is gathering momentum. As interest rates rise I would urge everyone to be vigilant and manage their risks carefully,” said Chan speaking on Thursday morning.
Hong Kong’s base rate now stands at 1.5 per cent.
The HKMA, Hong Kong’s de facto central bank, is obliged to follow US interest rates as Hong Kong’s currency is pegged to the US dollar.
On Wednesday afternoon US time, Fed chair Janet Yellen matched market expectations by increasing the US federal funds rate by 25 basis points to between 1.00 and 1.25 per cent.
Federal Reserve, as expected, raises US interest rates by 25 bp
Hong Kong banks will announce in the course of the day whether they will change the interest rates they offer to savers or borrowers.
Since rates began rising in December 2015 no Hong Kong bank has adjusted its prime lending rate, since funds are readily available to them, while competition pressures are intense.
The last time banks in Hong Kong adjusted their interest rates was 2008. These were downward moves at a time when the Fed slashed its interest rates to record lows.
“At the moment there is abundant liquidity in Hong Kong’s banking system, but as the interest rate differential widens between the Hong Kong dollar and the US dollar we expect capital outflows to increase,” Chan said.
Capital outflows would lead to tighter liquidity, and this would put pressure on banks to raise interest rates.
However, Chan said that systemic liquidity was not the only factor affecting mortgage rates.
“The cost of capital and funding also affects banks’ decisions to set their mortgage rates, and a number of Hong Kong banks chose to raise their mortgage rates last week in advance of the Federal Reserve’s decision,” he said.
Hong Kong’s banks raise mortgage rates, after HKMA tightened risk rules
HSBC, Bank of China Hong Kong, Standard Chartered, Bank of East Asia, Hang Seng bank and OCBC Wing Hang Bank all announced increases in their mortgage rates at the end of May.
However, analysts attributed this rise to tightening measures by the HKMA to control the property market rather than changes in underlying macro economic conditions.
The Fed also released a projection of potential future interest rate rises which indicates one further rise this year.
“Low inflationary pressure means the Fed is not forced into hiking rates aggressively, and we only expect to see higher rates if justified by supportive economic releases, with particular focus on the evolution of inflation,” said Mark Haefele, global chief investment officer, UBS Wealth Management in a note.
www.fotavgeia.blogspot.com
Base rate rises by 0.25 percentage points, tracking Fed move
COMMENTS: 8
Alun John
The Hong Kong Monetary Authority raised its base rate by 0.25 percentage points on Thursday morning following the US Federal Reserve’s overnight move.
In announcing the decision, HKMA chief executive Norman Chan Tak-lam reiterated his warning to Hong Kong home buyers that mortgage rates will rise in the near future.
“This is the Fed’s third increase in seven months, and is a sign that the pace of rate normalisation is gathering momentum. As interest rates rise I would urge everyone to be vigilant and manage their risks carefully,” said Chan speaking on Thursday morning.
Hong Kong’s base rate now stands at 1.5 per cent.
The HKMA, Hong Kong’s de facto central bank, is obliged to follow US interest rates as Hong Kong’s currency is pegged to the US dollar.
On Wednesday afternoon US time, Fed chair Janet Yellen matched market expectations by increasing the US federal funds rate by 25 basis points to between 1.00 and 1.25 per cent.
Federal Reserve, as expected, raises US interest rates by 25 bp
Hong Kong banks will announce in the course of the day whether they will change the interest rates they offer to savers or borrowers.
Since rates began rising in December 2015 no Hong Kong bank has adjusted its prime lending rate, since funds are readily available to them, while competition pressures are intense.
The last time banks in Hong Kong adjusted their interest rates was 2008. These were downward moves at a time when the Fed slashed its interest rates to record lows.
“At the moment there is abundant liquidity in Hong Kong’s banking system, but as the interest rate differential widens between the Hong Kong dollar and the US dollar we expect capital outflows to increase,” Chan said.
Capital outflows would lead to tighter liquidity, and this would put pressure on banks to raise interest rates.
However, Chan said that systemic liquidity was not the only factor affecting mortgage rates.
“The cost of capital and funding also affects banks’ decisions to set their mortgage rates, and a number of Hong Kong banks chose to raise their mortgage rates last week in advance of the Federal Reserve’s decision,” he said.
Hong Kong’s banks raise mortgage rates, after HKMA tightened risk rules
HSBC, Bank of China Hong Kong, Standard Chartered, Bank of East Asia, Hang Seng bank and OCBC Wing Hang Bank all announced increases in their mortgage rates at the end of May.
However, analysts attributed this rise to tightening measures by the HKMA to control the property market rather than changes in underlying macro economic conditions.
The Fed also released a projection of potential future interest rate rises which indicates one further rise this year.
“Low inflationary pressure means the Fed is not forced into hiking rates aggressively, and we only expect to see higher rates if justified by supportive economic releases, with particular focus on the evolution of inflation,” said Mark Haefele, global chief investment officer, UBS Wealth Management in a note.
www.fotavgeia.blogspot.com
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