The Hong Kong Monetary Authority (HKMA) on Thursday sounded a note of caution on US interest rates, warning that the cost of borrowing was unlikely to come down soon as it raised its own rate in response to the latest move by the US Federal Reserve.

Leading local banks including HSBC and Bank of China (Hong Kong) announced they're keeping their best lending rates steady at 5.625 percent.

Markets in Hong Kong opened strongly on Thursday after the Fed overnight increased its rate by a quarter of a percentage point, taking it to a target range of 4.50-4.75 percent. It's the lowest increase since March last year and raised hopes that the hikes in the cost of lending could be coming to an end.

The HKMA pushed its Base Rate to 5 percent in response. Its chief executive, Eddie Yue, said the Fed's decision was a sign that the US central bank was being more cautious, but did not indicate an end to the cycle of rate hikes.

"The pace of rate hike has further moderated since the last rate decision, and that reflects the need for the Fed to more carefully assess the US economic and inflationary trends, and also the effects of previous rate hikes in determining the magnitude and pacing of future hikes," he told reporters.

Yue said the Fed had indicated that if the current economic trends don't change, there is no reason for it to cut rates this year.

He added that while it is unclear at this stage how future hikes would unfold, he stressed potential interest rate changes won't affect Hong Kong's financial and monetary stability.

The HKMA chief said interbank rates in the SAR might remain at "elevated levels for some time".

"The public should be prepared for the likelihood that banks' lending rates may go further higher, and should carefully assess and manage the relevant risks, especially interest rate risks, when making property purchases, taking out mortgages or making other borrowing decisions."

Yue also sought to ease concerns over a sharp rise in the number of negative equity cases, saying that as home prices had dropped by 15 percent last year, such cases were inevitable for buyers who borrowed 90 percent of the property's value.

Figures released by the HKMA this week show that 12,164 owners owed more than the value of their properties by the end of December, compared to just 533 cases at the end of September and 55 at the end of June.

Yue said borrowers were still in a good position to repay their mortgages, and the ratio of non-performing loans remained low.
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Last updated: 2023-02-02 HKT 17:56