Banks Hold Firm After HKMA, Fed Hike Rates

Several banks announced on Thursday that they're holding rates unchanged despite the Hong Kong Monetary Authority’s move to increase the Base Rate by a quarter of a percentage point.

HSBC and Hang Seng said they would keep their best lending rate steady at 5.625 percent while Standard Chartered stuck with its rate of 5.875 percent. The Base Rate was raised to 5.25 percent on Thursday morning, after the US Federal Reserve announced a 25 basis point rate increase.

Speaking on RTHK's Money Talk programme, wealth investment strategist Enzio von Pfeil said the Fed's decision to raise rates by a quarter of a percentage point was in line with market expectations.

He expressed surprise at the Fed's pessimistic outlook for the US economy, noting that its median projection for GDP growth this year was 0.4 percent. However von Pfeil said he felt inflation in the US would not abate soon.

Speaking on the same programme, James McCormack, the global head of sovereigns at Fitch Ratings, said he expects there will be further rate hikes by the end of the year.

"I think going forward, that will really be the thing to watch, whether the banking system stabilises, which we think it probably will."

"Whether there will continue to be modest credit growth in the US, or whether that slips a little bit and allows the Fed to maybe pause on rates (hike)."

"But our expectation here is still two more 25 basis point (hikes)."

Hong Kong’s Base Rate is set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates, whichever is higher.

In a statement, the HKMA said Hong Kong's banking system is "sound and resilient", and that its financial and monetary markets will continue to operate in a smooth and orderly manner.

Announcing its latest rate increase overnight, the Fed indicated that it may be preparing a pause in rate hikes after the recent collapse of two US banks.

_____________________________