Interest Rates In HK To Remain High: HSBC

HSBC economists said on Monday that interest rates in the SAR will remain high, but the mainland's economic recovery gives reason to be optimistic.

In a virtual press conference, the bank's chief Asia economist, Frederic Neumann, said the US Federal Reserve is unlikely to start reducing the cost of borrowing until the second quarter of next year.

"That means in Hong Kong, interest rates will remain elevated for longer," Neumann said.

"At the moment we see a liquidity squeeze, which is pushing up interbank rates. But the base rate in Hong Kong will unlikely decline very quickly because the Fed is not going to cut rates, in our view, until the middle of next year."

Rates in Hong Kong are linked to those in the US because of the SAR's currency peg.

Neumann said despite volatility in the global financial market, growth in Asia is still supported by strong domestic demand, particularly on the mainland.

Herald van der Linde, the bank's head of equity strategy for Asia Pacific, said the mainland's economic recovery gives reason for optimism in Hong Kong.

“The recovery has been a little bit slower and weaker than initially anticipated, but we think that will come through also on the travel numbers,” he said.

Jing Liu, HSBC's chief economist for Greater China, said the bank recently upgraded its GDP growth forecast for China in 2023 to 6.3 percent, despite the "mixed picture of the recovery".

"Correspondingly, we upgraded our forecast for Hong Kong. This year we're going to see 5 percent growth and next year 2.5 percent growth," she said.

Liu said data from the last quarter indicated that consumption in the SAR has increased rapidly, adding that the bank had revised its forecast for the city's consumption growth to a year-on-year increase of 25 percent.

"On the one hand, this is due to the gradual recovery of local consumption, as well as continued support from the consumption vouchers. On the other hand, we have seen the return of many mainland tourists," she said.

Liu said the bank anticipates mainland tourist numbers to reach approximately two-thirds of pre-pandemic levels this year, with a full recovery expected by the second half of next year.