Hong Kong's six biggest lenders lowered their prime lending rates for a third time this year, trimming borrowing costs to the lowest level in more than two years.
HSBC and subsidiary Hang Seng Bank said they would trim their prime rate by 12.5 basis points to 5.25 per cent from Friday, the lowest since August 2022. Bank of China (Hong Kong) said it would cut its rate by the same level from Monday.
Bank of East Asia, Standard Chartered and ICBC Asia, said they would reduce their prime rate by the same margin to 5.5 per cent from Monday.
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The banks also said they would reduce their savings rates by the same margin to 0.25 per cent annually on deposits above HK$5,000 (US$640), while no interest will be paid on deposits below that threshold. Standard Chartered pays 0.25 per cent for deposits above HK$1.
"HSBC has decided to lower its Hong Kong dollar deposit and lending rates following another US rate cut, bringing a cumulative reduction of 62.5 basis points since September," said Luanne Lim, CEO of HSBC Hong Kong.
"The future path of rates remains highly uncertain going into 2025. We will continue to monitor the external environment and local economic outlook, ready to adjust our rates as needed."
US Federal Reserve chairman Jerome Powell hinted at fewer rate cuts next year. Photo: AP Photo alt=US Federal Reserve chairman Jerome Powell hinted at fewer rate cuts next year. Photo: AP Photo>
Lim's concerns were shared by the head of Hong Kong's de facto central bank, who warned the interest rate environment would remain volatile next year after it cut rates for the third time this year in line with the overnight move by the US Federal Reserve.
"The US next year will continue to cut rates, but the pace and frequency of rate cuts may be less than initially expected," Eddie Yue Wai-man, the CEO of Hong Kong Monetary Authority (HKMA), said in a briefing on Thursday.
"If the interest rates remain at a relatively high level for some time, the extent and pace of future interest rate cuts would be subject to considerable uncertainty," he said, adding that the public should carefully assess and manage their borrowings.
The HKMA's 25 basis points cut took its base rate to 4.75 per cent, the lowest level since December 2022.
Hours earlier, the Fed said it would maintain its target rate in the range of 4.25 to 4.50 per cent. However, optimism with the widely expected cut was punctured by the Fed's unexpectedly hawkish forecast of only two more reductions in 2025.
Hong Kong's benchmark Hang Seng Index closed 0.6 per cent lower on Thursday after the downbeat forecast sent Wall Street reeling in late trading. The Dow Jones Industrial Average tumbled 2.5 per cent, while the Nasdaq Composite plunged 3.5 per cent.
"A slower pace of [rate] cuts really reflects both the higher inflation readings we have had this year and the expectations that inflation will be higher" in 2025, Fed chairman Jerome Powell said after the final meeting of the Federal Open Market Committee (FOMC) this year. "We are closer to the neutral rate, which is another reason to be cautious about further moves."
A slower pace of rate cuts next year will have limited impact on property transactions, said Wilson Chan Fung-cheung, associate director of the MBA programme at City University of Hong Kong.
"The interest rate is only one element," Chan said. "China's stimulus measures to boost economic growth, capital markets and economic activity are crucial to Hong Kong's property market."
Yue said the HKMA's rate cut by a full percentage point since September has reduced the cost of funding, benefiting the property market and the overall economy. "We have seen property transactions increase over the past two months, while property prices have also become more stable."
The latest rate cut by major banks will lighten the monthly burden on mortgage borrowers by about HK$351 to HK$22,452, according to mortgage broker mReferral, based on a typical HK$5 million, 30-year loan at prime rate minus 1.75 per cent.
"Continued rate cuts will have a positive impact on the property market and increase the confidence of potential buyers," said Eric Tso Tak-ming, chief vice-president of mReferral. "It is expected that both the volume of transactions and property prices will rise in the future."
The Fed has entered a new phase of monetary policy - the pause phase, Brandywine Global Investment Management said in a research note after the rate cut.
"The longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut," said Jack McIntyre, a portfolio manager at the US fund manager. "Policy uncertainty will make for more volatile financial markets in 2025."
The HKMA follows the Fed's monetary policy. Photo: Yik Yeung-man alt=The HKMA follows the Fed's monetary policy. Photo: Yik Yeung-man>
"Looking ahead, we do anticipate a pause in interest rates in early 2025, with inflation proving sticky," said Jacky Lam, financial consultant at Charles Schwab Hong Kong, said in a research note on Wednesday before the latest move.
The HKMA has followed the Fed's monetary policy in lockstep since 1983 under its linked exchange rate system to preserve the local currency's peg to the US dollar.
Before the rate cut cycle began, the Fed and HKMA increased their rates 11 times between March 2022 and July 2003, taking it to the highest level since December 2007.
A pledge by the incoming Trump administration to add import tariffs would be inherently inflationary, as the higher costs are passed to consumers. That would keep US inflation "higher for longer," economists say.
The US annual inflation rate was 2.7 per cent in November, slightly higher than 2.6 per cent in October and the Fed's target of 2 per cent. The inflation was also much lower than 3.1 per cent a year earlier and record high of 9.1 per cent in June 2022.
The one-month Hibor, or Hong Kong interbank offered rate, weakened to 4.5298 per cent on Thursday from 4.9853 per cent at the beginning of this year. Three-month Hibor fell to 4.3537 per cent from 5.0716 per cent over the same period, according to data published by the Hong Kong Association of Banks.
