HK Banking System balance expected to fall below US$13bn by next Fed meeting

Analyst: HK prime rate catches up soon as HKD interbank rate rises for 13th straight day

The US Federal Reserve is expected to raise interest rates again at its November 1-2 meeting. In Hong Kong, Hong Kong’s banking system’s total balances have plummeted to his HK$100 billion (US$13 billion) safety margin, and HKD interest rates have risen for his 13th straight day. Some analysts say Hong Kong banks will have to raise interest rates again after the Federal Reserve’s interest rate meeting. Others say that if Hong Kong banks raise local interest rates again, it will put more pressure on Hong Kong’s property market and economy.

Banking system’s total balances could fall below HK$100bn before Fed rate hike

The Federal Reserve kicked off a cycle of rising interest rates in March of this year. The Hong Kong Monetary Authority followed suit (currently his interbank lending rate is 4.48%), but it was not until September that Hong Kong banks began raising rates. The Hong Kong dollar continues to depreciate as the interest rate differential between Hong Kong and the United States widens. This year, since May 12, the Hong Kong Monetary Authority (HKMA) has placed 39 Hong Kong dollar sell orders, totaling HK$238.117 billion (US$30.3 billion). Eight of the 13 deals were over HK$10 billion (US$1.3 billion).

Total balances in the Hong Kong banking system could fall to HK$100.155 billion (US$13 billion) on 31 October.

Gary Ng, a senior economist at Natixis, told the Epoch Times that U.S. inflation has eased in recent months due to lower energy and food prices, but growth remains high. The Fed is expected to raise interest rates by another 75 basis points in November, coupled with higher core inflation due to higher salary expectations. Meanwhile, the total balance of Hong Kong’s banking system will fall below the HK$100 billion level by the time the Federal Reserve meets.

He further explained that declining balances in the banking system mean that liquidity is draining out of Hong Kong dollars. may go. Moreover, the stock market’s overall performance is not that good. Overall, short-term capital outflows are likely.

Ivy Wong Mei-fung, managing director of Centaline Mortgage Broker Ltd., said he expects US dollar rates to continue their upward trend as the US interest rate meeting in November approaches.

HK dollar interest rates rise for 13th straight day

Over the past few days, Hong Kong dollar interest rates have continued to rise. On Oct. 28, his one-month Hong Kong dollar offer rate (HIBOR) on real estate secured loans rose to his 3.11726%. This is his 13th consecutive day of gains and the highest since his 3.18214% on Oct. 28, 2008.

Ivy Wong Mei-fung, Managing Director of Centaline Mortgage Brokers Ltd., said this means that the monthly interbank interest rate on the bank’s cost of capital is higher than the market mortgage rate, which ranges from 2.625% to 2.875%. said to reflect a significantly higher Banks have been under pressure to raise the prime rate (P). After the US interest rates meeting in early November, local banks are expected to raise the prime rate again, and he expects the prime rate to rise no lower than 0.25%.

Natixis’ Gary Ng believes Hong Kong banks will introduce preferential policies to attract HKD and US dollar deposits as they will need to raise interest rates to retain funds if faced with reduced liquidity. increase. All of this is within the expectations of the linked exchanges. rate design. However, Hong Kong banks usually consider other factors such as macroeconomics, their own profits and net interest margins before raising interest rates. Banks in Hong Kong raised the prime rate by 0.125% this time and are expected to raise it again by 0.125% by the end of the year.

The US Federal Reserve kicked off its rate hike cycle in March, raising rates five times for a cumulative 3% hike. The Hong Kong bank did not follow suit until after the Federal Reserve’s interest rate meeting on Sept. 22, when he announced that HSBC would raise its prime interest rate by 0.125%. This was below market expectations. Several other Hong Kong banks have since announced increases in prime interest rates.

Ivy Wong said a 0.25% rise in Hong Kong’s prime rate would push interest rates up to 3% in the range of 2.875% to 3.125%. As an example, take an average mortgage amount of about HK$5 million (US$640K) in a 30-year mortgage, if the interest rate rises from 2.725% to 2.975% to her, her monthly payment will increase from HK $667 (US$85) increase. 21,013 HKD (2,677 USD), an increase of 3.3%. If mortgage interest rates rise from 2.5% to 2.975%, monthly payments will increase by HKD1,257 (USD160), or an increase of 6.3%. If you have a HK$1 million (US$127,000) mortgage with a 30-year repayment term, your monthly repayments will increase by HK$134 (US$17), or a 3.3% increase.

Hong Kong bank rates rise, property prices and economic outlook worsen

Gary Ng also pointed out that interest rate hikes by Hong Kong banks will put more pressure on property prices in Hong Kong as it will increase the burden on borrowers. This will exacerbate an already very weak economy due to pandemic prevention measures and reduce the overall wealth effect. The public’s short-term expectations for the future can be conservative. People save more and spend less instead.

He added that it should be noted that current Hong Kong interest rates for most maturities are lower than those in the United States. This means that funds still have an incentive to execute carry trades. Investors can borrow Hong Kong dollars to buy US dollar assets at low cost. Interest rate differentials are not a major factor in the flow of funds, even if interest rates are higher than those in the United States and the funds cannot be held. Other factors, such as weak market sentiment, may be to blame.

Treasury Secretary Paul Chan Mopo said in early October that the pace of rate hikes by global central banks was very rare in the past 50 years, and that the global economy is expected to slip into recession next year as a result. rice field. In that case, the short-term economic outlook for Hong Kong is not very optimistic and is expected to be negative.

Joseph Tsang, managing director of Jones Lang LaSalle Hong Kong, said at a press conference a few days ago that the average monthly housing transaction volume in Hong Kong over the past nine months has fallen to a 20-year low, with small-scale homes continuing to grow. Prices for mid-range residential properties are down more than 7% year-to-date. He pointed out that the long downward cycle experienced by Hong Kong’s property market from 1999 to 2003 is likely to be repeated, affected by several unfavorable factors.

Ruth Lee


Harry McKennie