Hong Kong’s Lenders Slash Prime Rates to Lowest Level in Over Two Years
In a move to trim borrowing costs, Hong Kong’s six largest lenders have lowered their prime lending rates for the third time this year. The rate cut brings borrowing costs to their lowest level since August 2022.
HSBC and Hang Seng Bank Lead the Charge
HSBC and its subsidiary Hang Seng Bank are reducing their prime rate by 12.5 basis points to 5.25 per cent, effective Friday. This marks the lowest rate since August 2022. Bank of China (Hong Kong) will also cut its rate by the same margin, starting Monday. Other major lenders, including Bank of East Asia, Standard Chartered, and ICBC Asia, will reduce their prime rate by the same amount to 5.5 per cent, also effective Monday.
Savings Rates Also Take a Hit
In addition to the prime rate cut, the banks will reduce their savings rates by the same margin to 0.25 per cent annually on deposits above HK$5,000 (US$640). Deposits below this threshold will not earn interest. Standard Chartered offers a slightly higher rate of 0.25 per cent for deposits above HK$1.
Uncertainty Ahead
Luanne Lim, CEO of HSBC Hong Kong, expressed concerns about the future path of rates, citing uncertainty going into 2025. The head of Hong Kong’s de facto central bank, Eddie Yue Wai-man, also warned of a volatile interest rate environment next year.
US Federal Reserve’s Impact
The US Federal Reserve’s decision to maintain its target rate range and hint at fewer rate cuts next year has sent ripples through the global economy. Hong Kong’s benchmark Hang Seng Index closed 0.6 per cent lower on Thursday, while Wall Street experienced a significant downturn.
Property Market Implications
Experts believe that a slower pace of rate cuts next year will have limited impact on property transactions. However, the cumulative effect of rate cuts since September has reduced the cost of funding, benefiting the property market and the overall economy.
Mortgage Borrowers Rejoice
The latest rate cut is expected to lighten the monthly burden on mortgage borrowers by about HK$351 to HK$22,452, according to mortgage broker mReferral. This could lead to increased confidence among potential buyers and a rise in property prices.
Monetary Policy Shift
The Fed’s new phase of monetary policy, dubbed the “pause phase,” is expected to bring more volatility to financial markets in 2025. The HKMA, which follows the Fed’s monetary policy, has also entered a period of uncertainty.
Looking Ahead
As the global economy navigates this new phase of monetary policy, experts anticipate a pause in interest rates in early 2025, with inflation proving sticky. The HKMA’s decision to follow the Fed’s lead will continue to shape Hong Kong’s economic landscape.
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