Hong Kong Banks Maintain Prime Rates as HSBC Leads in Stalling Amid US Fed Pause

Hong Kong's banks, led by HSBC, have opted to keep their prime rates unchanged, diverging from the recent trend of raising interest rates in line with the US Federal Reserve. HSBC and its subsidiary Hang Seng Bank announced the decision to maintain their prime rates at 5.875%, with Bank of China (Hong Kong) and Standard Chartered following suit. This move comes after the Hong Kong Monetary Authority (HKMA) opted to keep its base rate at 5.75%, aligning with the Fed's decision to leave its target rate in the 5.25% to 5.5% range.

The decision marks the fourth pause since the Fed initiated its rate-hike cycle in March 2022. Hong Kong has traditionally mirrored the Fed's interest rate policies, maintaining the linked exchange rate system to the US dollar. Despite the recent pause, the HKMA has cautioned the public about potential interest-rate risks, emphasizing the possibility of a prolonged high-interest rate environment.

The pause in rate hikes provides relief for businesses and mortgage borrowers in Hong Kong, where concerns about economic uncertainties, geopolitical tensions, and high interest rates persist. Financial Secretary Paul Chan Mo-po suggested that the city is likely to continue running a fiscal deficit next year, given these uncertainties.

The HKMA last tightened interest rates in July, raising the base rate by 25 basis points to 5.75%, the highest level since December 2007. Hong Kong's economy expanded at an annual pace of 4.1% in the third quarter, an acceleration from the 1.5% pace in the second quarter. The recent decision to maintain prime rates reflects the cautious approach amid global economic uncertainties and the potential impact of the Fed's future actions.

While the US Federal Reserve's decision to pause interest rate hikes has provided temporary relief, experts are cautious about predicting a near-term rate cut. Analysts suggest that the Fed may have reached its terminal rate, but a rate cut might be delayed until mid-2024 to ensure control over inflation. The pause in rate hikes provides an opportunity for businesses and borrowers in Hong Kong to navigate the challenges posed by economic uncertainties and evolving global conditions.

By fLEXI tEAM