Mortgage holders like to face a jump in monthly charges
Data pointing to unexpectedly high inflation in the United States could be the albatross signalling the end of Hong Kong's housing recovery, as local banks raise short-term interest rates in line with a newly vigilant US central bank.
Several US Federal Reserve officials last week voiced support for continued increases in official interest rates to quell rising inflation, dashing hopes for a pause after 11 quarter percentage point moves since June last year. The Fed said monetary policy remains 'accommodative' and it had resisted calls to suspend rate increases in the wake of hurricanes Katrina and Rita.
HSBC chief economist for Greater China, George Leung, said he had raised his outlook for Hong Kong interest rates in view of the growing US inflation problem. He now expects a three-quarter percentage point rise in the prime rate before a gradual reduction in rates in the middle of next year.
'We expect further interest-rate hikes given the inflation picture,' he said.
Only weeks ago, HSBC's house view was Hong Kong interest rates had already peaked and would decline slowly next near.
Financial markets expect a rate rise at the Fed's next policy meeting on November 1 and another move in December as well. Hong Kong's prime rates, which move in line with US rates because of the currency peg, could rise to 7.75 per cent. With the discount to prime at which home loans are advanced at 2.25 percentage points, the effective mortgage rate would rise to 5.5 per cent.