HKMA warns of uncertainties after raising rates

The chief executive of the Hong Kong Monetary Authority, Eddie Yue, cautioned on Thursday about significant uncertainties surrounding the city's future borrowing costs. This came after the de facto central bank increased its base rate by a quarter of a percentage point to 4.25 percent, just hours after the US Federal Reserve raised its target range by the same margin to between 3.75 percent and four percent.

HSBC maintained its prime lending rate steady, with other banks expected to announce their rates soon. The Fed and HKMA's rate hikes were their first in over three years, following a 25 basis point increase in July 2023. Yue highlighted that while the Fed's decision aligned with market expectations, it signaled US policymakers' concerns over inflation.

He emphasized that the public should carefully manage interest rate risks when making financial decisions. The base rate outlook will depend on factors like the HKD-USD interest rate differential, local currency supply-demand conditions, and capital market activities. Local lenders will consider their funding cost structures and local currency supply and demand when adjusting HKD deposit and lending rates.

Yue noted that US policymakers might raise rates further if rising oil prices affect other product and service prices. However, he stressed that Hong Kong's monetary and financial markets have remained orderly, with the property market stable and lenders providing substantial support. He expects the bad debt ratio to continue decreasing and stabilizing.

Moreover, the HKMA aims to increase its gold holdings in the Exchange Fund to diversify and participate more actively in financial markets, supporting the growth of the Hong Kong gold market and aligning with the government's goal to develop gold and commodities.