The chief executive of the Hong Kong Monetary Authority (HKMA), Eddie Yue, on Thursday warned about considerable uncertainties over the city's future borrowing costs, though he noted the SAR's bad debt ratio had remained stable.

This came after the city's de facto central bank raised its base rate by a quarter of a percentage point to 4.25 percent, hours after the US Federal Reserve lifted its target range by the same margin to between 3.75 percent and four percent.

HSBC announced it is keeping its prime lending rate unchanged, while other banks are expected to announce their rates soon.

The moves by the Fed and the HKMA marked their first rate hike in over three years since July 2023, when they also raised rates by 25 basis points.

Speaking at a press conference, Yue noted that while the Fed's decision came in line with market expectations, it reflected US policymakers' concerns on the inflation outlook.

"US interest rate adjustments are subject to considerable uncertainties, which may influence the interest rate environment in Hong Kong," he said.

"The public should carefully manage interest rate risks when making financial decisions," he added.

Looking ahead, he said the city's base rate outlook will depend on various factors, including the Hong Kong dollar-US dollar interest rate differential, the supply-demand conditions for the local currency, and capital market activities.

On Hong Kong dollar deposit and lending rates, he said local lenders would take into consideration issues, such as their own funding cost structure, as well as the local currency funding supply and demand.

Yue noted US policymakers could further raise rates if the rising oil prices also affect prices of other products and services.

But he stressed that the city's monetary and financial markets have continued to operate in an orderly manner, adding that the city's bad debt ratio had eased since the end of last year.

"What we're seeing right now is that the property market is quite stable, including that in the commercial space, and local lenders have also offered considerable provision supports," he said.

"So we can see that the bad debt ratio is gradually decreasing and stabilising. I also expect this situation to remain like this."

Separately, Yue said authorities are seeking to increase the gold holdings in its Exchange Fund, which serves as the financial war chest to defend the local currency.

"The main reason is, of course, to reduce risks by diversifying our holdings. But other than that, we hope it could also allow us to be more actively participating in the spot and other financial products' markets," he said.

"This will also help promote the development of the entire ecosystem of the Hong Kong gold market, and it's in line with the government's goal to develop gold and commodities."


Edited by Aaron Tam