Respite from the current rate-rise cycle does not mean businesses and borrowers may look forward to lower interest rates any time soon. Rather, they should heed the Hong Kong Monetary Authority’s prevailing warning, reiterated by its chief executive, Eddie Yue Wai-man, to continue to be careful of borrowing costs and their affordability when they apply for loans.
Yue was speaking after the US Federal Reserve kept its target rate unchanged – between 5.25 and 5.5 per cent – for the second time since rates began rising in March 2022.
The HKMA followed by holding its base rate unchanged at 5.75 per cent, and HSBC, the biggest among Hong Kong’s currency-issuing banks, kept its prime rate unchanged at 5.875 per cent, the first lender to follow the de facto central bank’s move.
But that was after seven lenders including HSBC, Bank of China (Hong Kong) and Standard Chartered raised their mortgage rates for new loans by 50 basis points this week.
In Washington, Fed chairman Jerome Powell warned, uncompromisingly, that he was prepared to raise rates further, even as the United States enters a politically sensitive period ahead of a presidential election next year. “We intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.”
Hence the decision to leave rates unchanged is considered a “skip” in the Fed’s rate cycle, which has moved to what is called a “higher for longer” phase. That means what it says – rates are expected to stay higher for longer.
Ultimately a rising prime rate is inevitable, because the cost of money has soared in the interbank market, which will translate to higher borrowing costs later. Hence the HKMA warning, and the “higher for longer” phase.
Hong Kong’s most recent tightening was in July, when the base rate was raised by 25 basis points to 5.75 per cent.
The HKMA warned borrowers, rightly, this is not the time to relax scrutiny of risk in property purchases, mortgages or other borrowing decisions that weigh on financial security. It remains premature to conclude whether the US rate-rise cycle has run its full course and therefore prudent to expect high rates to last some time.