Editorial | Hong Kong borrowers had better get ready for series of interest rate rises
- With the US Fed forecasting at least six more increases this year, and more to follow, the city being pegged to the US dollar is bound to feel their cumulative effect
The US Federal Reserve raised interest rates last week for the first time since 2018 and promised more to come. And yet, the Hang Seng Index jumped more than 1,400 points.
This followed the biggest one-day gain since October 2008 the day before.
The move, well-advertised in the United States for over a year, had been digested by the market, which instead responded to Vice-Premier Liu He’s well-received promise of a slew of supportive measures after the recent stock rout.
The rise of a quarter-percentage point alone may not have too much impact on people in Hong Kong. But with the Fed forecast to prompt at least six more increases this year, followed by four in 2023, of 25 basis points each, the cumulative effect will be substantial and keenly felt by borrowers in the city.
02:47
As Hongkongers struggle with rising inflation, the city’s most vulnerable are the hardest hit
The Hong Kong Monetary Authority (HKMA) has always followed the Fed in lockstep under the dollar peg. Local commercial lenders may have some leeway to hold off raising their best lending rate, but it’s only a matter of when, not if, for them to follow suit.
In the last rising cycle from 2015 to 2018, the banks waited for several increases by the US Fed/HKMA before raising their own rates.
