Hong Kong dollar may weaken after rate rise, but bad-debt risks remain low: HKMA The Hong Kong dollar may come under pressure against the US dollar after the first interest rate rise in three years, but the city does not face a heightened bad-debt risk despite higher borrowing costs, according to the head of the de facto central bank. Hong Kong Monetary Authority (HKMA) chief executive Eddie Yue Wai-man said the US Federal Reserve’s rate rise on Thursday would widen the gap between the market interest rates of the US dollar and the Hong Kong dollar, encouraging more carry trades as investors switch to US dollar assets to earn higher yields. “The increase in carry trades may result in a weaker Hong Kong dollar against the US dollar,” Yue said at a media briefing on Thursday. “The US interest rate outlook remains full of uncertainties, which will also have an impact on Hong Kong’s market and economy. The public should be aware of interest rate risks when buying property or making other investment decisions.” Yue, however, played down worries that higher interest rates would lead to more bad debt, noting that the sector’s overall bad-loan ratio had fallen since late last year as the property market stabilised. His comments came after the HKMA increased its base rate by a quarter of a percentage point on Thursday, hours after the US Federal Reserve raised its target range for the federal funds rate by 0.25 percentage points to tackle inflation amid conflict in the Middle East. The HKMA lifted the city’s base rate to 4.25 per cent after the Fed raised the target range to between 3.75 per cent and 4 per cent following the sixth meeting of the Federal Open Market Committee (FOMC) this year. The city’s three note-issuing banks did not follow suit. HSBC and Bank of China (Hong Kong) kept their prime lending rate at 5 per cent, while Standard Chartered maintained its prime rate at 5.25 per cent, according to separate statements from the lenders. All three institutions set their Hong Kong dollar savings rate at 0.001 per cent for customers with deposits above HK$5,000 (US$637), while balances below this threshold would continue to earn no interest. HSBC, however, said it would increase its savings rate for US dollar deposits to 0.125 per cent from 0.001 per cent per annum, effective Friday. The Hong Kong dollar traded at 7.8457 per US dollar as of 1pm on Thursday, its weakest level in a month. The moves marked the first rate rises by the Fed and the HKMA since July 2023, when they also increased rates by a quarter of a percentage point. “The plain fact is that inflation is too high and has been for too long,” said Kevin Warsh at a news briefing after presiding over his third FOMC meeting as Fed chairman. “Price stability is foundational to economic growth, and I think we took an important step today to deliver it.” The Fed’s decision was widely expected, with 93.5 per cent of traders forecasting a rise and the rest expecting no change, according to CME FedWatch data based on Fed funds futures contracts on Wednesday. Following the rate rise, about 48.7 per cent of traders expected another quarter-point increase at the October FOMC meeting, while the remainder expected no change. Barclays Research said it expected the FOMC to deliver another quarter-point increase in December. The Fed and the HKMA both reduced their key policy rates by a total of three-quarters of a percentage point last year, following a full percentage point cut in 2024. At the beginning of this year, analysts forecast two to three rate cuts in 2026, but the tide turned after the US and Israel launched their war on Iran in late February. The United States’ inflation rate in August was 3.4 per cent, unchanged from July and down from 3.5 per cent in June and 4.2 per cent in May. But, driven mainly by rising energy costs, it remains above February’s 2.4 per cent and far from the Fed’s 2 per cent target. Under the Linked Exchange Rate System introduced in 1983, the Hong Kong dollar is pegged to the US dollar, which means the HKMA always adjusts its base rate when the FOMC decides to do so. However, the city’s commercial banks can decide when and how to adjust their prime and savings rates. https://www.scmp.com/business/banking-finance/article/3367783/hkma-raises-base-rate-quarter-point-425-first-increase-2023?pgtype=live (ICE HONG KONG)

Fonte notizia: South China Morning Post