Hong Kong central bank raises rates, warns of tighter interbank market (updated)

Boc Hong Kong Holdings

28/07/2022 24:14

(Adds Hong Kong banks' decision on rates)
    By Donny Kwok and Kiki Lo
    HONG KONG, July 28 (Reuters) - The Hong Kong Monetary
Authority (HKMA) on Thursday raised its base rate charged
through the overnight discount window by 75 basis points to
2.75%, hours after the U.S. Federal Reserve delivered a rate
hike of the same margin.
    Hong Kong's monetary policy moves in lock-step with that of
the United States as the city's currency  HKD=D3  is pegged to
the greenback.
    HKMA chief executive Eddie Yue said he expects the city's
overnight and one-month interbank rates, as well as short-term
rates, to accelerate at a much faster pace. 
    "With funds flowing out from the Hong Kong dollar system,
the interest rate automatic adjustment mechanism will kick in,
driving the Hong Kong dollar interbank rates to gradually rise
and track the U.S. dollar rates," Yue said. 
    "This will help offset the incentives for carry trade and
stabilise the Hong Kong dollar within the 7.75 and 7.85 range,"
he added, referring to the tight band of the city's peg to the
U.S. dollar.
    Soon after, Finance Secretary Paul Chan told reporters the
city's property market, where homes are among the least
affordable in the world, had "strong underlying demand" and
could withstand higher interest rates.
    "The basics of our property market remain resilient,
although the sentiment will be dampened because of the increased
mortgage payments and the expectation of the rate to go up
further," Chan said. 
    He added Hong Kong banks also had ample liquidity, as well
as low exposure to property developers in mainland China which
are facing a severe downturn. 
    Hong Kong private home prices fell at a faster pace in June
and dropped to the lowest since December 2020, official data
showed on Wednesday, as homebuyers stayed on the sidelines due
to an uncertain outlook.  urn:newsml:reuters.com:*:nL1N2Z805Y
    Major banks in the city left their lending rates unchanged
on Thursday with HSBC  0005.HK  maintaining its best lending
rates at 5% but raising its U.S dollar savings rate to 0.25%
from 0.001%.  urn:newsml:reuters.com:*:nL4N2Z821V
    Standard Chartered  2888.HK  and Bank of China (Hong Kong)
said they would leave their Hong Kong dollar best lending rate
and savings deposit rates unchanged.
    One month Hibor  HIHKD1MD=  - the Hong Kong Interbank
Offered Rate, a benchmark used for pricing mortgages - last week
rose to its highest since May 2020.  urn:newsml:reuters.com:*:nL1N2Z309Z 
    The Federal Reserve raised the benchmark overnight interest
rate by three-quarters of a percentage point, its latest move to
tackle surging inflation. Fed Chairman Jerome Powell said he did
not believe the U.S. economy is currently in a recession but
that it is softening.  urn:newsml:reuters.com:*:nL1N2Z71DY
    

 (Reporting by Donny Kwok, Kiki Lo and Alun John; Editing by
Kenneth Maxwell and Kim Coghill)
 ((donny.kwok@thomsonreuters.com; +852 3462 7745; Reuters
Messaging: donny.kwok.reuters.com@reuters.net))