HKMA Raises Base Rate Following Fed Decision

The Hong Kong Monetary Authority on Thursday increased the base lending rate in the SAR by 25 basis points to 0.75 percent, keeping its rate 50 basis points above that of the US Federal Reserve.

The Fed announced its first rate increase since 2018 in the early hours Hong Kong time as it sought to bring runaway inflation overnight, taking the rate from its near-zero level to a quarter of a percentage point.

The US central bank said this would be the first in a series of six similar rate rises this year.

Nelson Wong, head of research for China at real estate services giant JLL, said the impact of higher borrowing costs on Hong Kong's property market was likely to be limited because activity had been limited since the fifth wave of the Covid-19 pandemic took hold.

Speaking on RTHK's Hong Kong Today programme, Wong said that, for most borrowers, the impact of further rate increases would be limited because of caps on mortgage rates.

"Even if the Fed will increase rates five to six times this year, that will probably add up to just about a two percentage point interest rate hike in Hong Kong and that will probably not be affecting most of the mortgage borrowers' interest rates all that much because we will already hit the mortgage cap rate by about 2.25 to 2.5 percent," he told RTHK's Janice Wong.

"The impact on buyers' expectation will be limited."

He said residential transactions had fallen to fewer than 3,000 last month, half the monthly average last year, amid expectations of a rate increase and because the Covid pandemic made property sales difficult.

He said he expected pressure on prices in the first half of the year, with few transactions taking place.