Hong Kong’s de facto central bank has warned the public to beware of interest rate uncertainties this year after leaving its base rate unchanged, following a similar move overnight by the US Federal Reserve, leaving borrowers in the city with a longer wait for funding costs to fall.
The Hong Kong Monetary Authority (HKMA) announced its decision to keep the city’s base rate at 4 per cent on Thursday morning. Hours earlier, the Fed also kept its target rate in the range of 3.5 per cent to 3.75 per cent, after the first meeting of the Federal Open Market Committee (FOMC) this year.
“The future trend of US interest rates remains quite uncertain, which may influence the interest rate environment in Hong Kong,” the HKMA said. “The public should carefully manage interest rate risks when making decisions about property purchase, investment or borrowing.”
Under a currency peg known as the Linked Exchange Rate System, Hong Kong’s monetary policy has moved in lockstep with the Fed since 1983. However, commercial banks can decide when and by how much to cut their prime and savings rates.
The city’s three note-issuing banks – HSBC, Standard Chartered and Bank of China (Hong Kong) – said on Thursday that they would keep their prime lending and savings rates unchanged.
The decision of Hong Kong lenders came as no surprise to the market. Savings rates have been cut close to zero since October, while any reduction in the prime rate would erode banks’ net interest margin, affecting their profitability.