For people who monitor interest rates for a living, it has been a hectic week, with several major central banks making announcements. But besides finance professionals, Hong Kong people are also keenly interested. With their mortgages and business loans – and the economy in general – running on a currency pegged to the US dollar, the latest rate reduction by the US Federal Reserve also serves to indicate future rates’ movement.
The main US lending rate has been lowered to 4-4.25 per cent in the first cut so far this year. The Fed anticipates two more cuts before the year is out.
Meanwhile, the Bank of Canada has also lowered its benchmark rate. The European Central Bank has left its key rates unchanged, likewise the Bank of England, which has, however, been reducing the pace of quantitative tightening in response to a slowing economy.
Analysts expect the People’s Bank of China to engage in moderate easing this year. With more anticipated US cuts, the yuan may continue to make gains against the US dollar.
Given central banks’ mostly accommodative policy, there will be plenty of capital from global investors sloshing around.
In the immediate term, that could be a boost to the local real estate market, which is still in a nascent recovery, and the stock market, which has been one of the world’s best performers this year. Further US rate cuts may give the bull run more legs. The Hong Kong Monetary Authority and the government have consistently advised that borrowers should be sensible and realistic about their financial situation. Much that is affecting the local economy and its outlook is beyond our control.