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Banks (Finance)

Hong Kong Lenders Unlikely to Raise Interest Rates Amid Economic Uncertainty

Strategic Insights

— 1 min read

Hong Kong lenders have expressed reluctance to increase interest rates, citing concerns about the US economy and its impact on the local market. Despite the link between the Hong Kong dollar and the US dollar, local lenders have been conservative in raising interest rates, increasing them by only 0.25 percentage point so far this year. The decision to raise interest rates in Hong Kong would depend on local interbank rates, which remain low due to ample liquidity in the market.

Key Takeaways:

  • Hong Kong lenders are unlikely to raise interest rates even if the Federal Reserve increases US rates by a further quarter percentage point.
  • The chances of a rate rise at the Federal Open Markets Committee meeting are small, with August federal funds futures contracts pricing in only a 16 per cent chance of a 25 basis point rise.
  • The decision to raise interest rates in Hong Kong would depend on local interbank rates, which remain low due to ample liquidity in the market.
  • Local interbank rates have declined this year due to cash inflows, closing at 3.8 per cent and 4.255 per cent for one-month and three-month rates, respectively, on Friday.
  • Raymond Or Ching-fai, vice-chairman of Hang Seng Bank, and Stanley Wong Yuen-fei, general manager of ICBC (Asia), both expressed skepticism about a rate rise in Hong Kong.
  • A decision to raise interest rates in Hong Kong could have a positive impact on the local stock and property markets.

Statistics:

  • 16 per cent: the chances of a 25 basis point rise in US rates, as priced by August federal funds futures contracts.
  • 42 per cent: the chances of a 25 basis point rise in US rates before the jobless data was released.
  • 1 per cent: the key federal funds rate in the US before May 2022.
  • 5.25 per cent: the principal policy rate in the US as of June 2022.
  • 0.25 percentage point: the increase in interest rates in Hong Kong so far this year.
  • 3.8 per cent: the one-month local interbank rate on Friday.
  • 4.255 per cent: the three-month local interbank rate on Friday.

Sources:

  • "Hong Kong lenders unlikely to raise interest rates, despite US Fed's coming hike", South China Morning Post, https://www.scmp.com/business/economics/article/3201416/hong-kong-lenders-unlikely-raise-interest-rates-despite-us-fed (no date)
  • Byline: Maria Chan

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