HSBC leaves prime lending and deposit rates unchanged as borrowers eye interest relief later this year

HSBC leaves prime lending and deposit rates unchanged as borrowers eye interest relief later this year

HSBC leaves prime lending and deposit rates unchanged as borrowers eye interest relief later this year

Hong Kong’s biggest lender HSBC announced it will keep its lending and deposit rates unchanged in line with the city’s monetary authority, meaning businesses and mortgage borrowers will have to wait until at least later this year for interest relief as the economy struggles to crawl out of a stubborn slump.

HSBC kept its prime lending rate unchanged at 5.875 per cent, paying 0.875 per cent per annum for deposits, the bank said in a statement on Thursday.

The bank’s decision follows that of the Hong Kong Monetary Authority (HKMA), which left the city’s base rate at 5.75 per cent hours after the Federal Reserve kept its target range at 5.25 to 5.5 per cent in its second policy decision of the year.

The HKMA has followed the Fed’s rate decision in lockstep since 1983 by design under its linked exchange rate system to preserve the local currency peg to the US dollar.

The Chinese national flag is seen among buildings in Hong Kong’s Central district, including the HSBC headquarters (right) and Bank of China building (left). Photo: AFP

The pause, the fifth time in a row since the last rate rise in July, confirmed the end of the rate rise cycle that began in March 2022. Analysts now expect the first rate cut from the Fed and the HKMA to start in June or July, with commercial banks lowering their rates later this year or earlier next year.

The Fed is expected to cut its key rate four times this year for a reduction of a full percentage point, said Kelvin Lau, senior economist of Greater China at Standard Chartered Bank.

Hong Kong’s interest rate should follow the cut, but by a smaller margin, with the Hong Kong interbank rate, or Hibor, falling by about 70 basis points by the end of 2024, he said. Commercial banks may also cut down their prime rates two times by about 12.5 basis points each, Lau added.

HKMA urges borrower caution on interest-rate outlook

“A lower funding cost will be positive to the property market and the overall economy of Hong Kong,” Law said in a telephone conference on Thursday. “The expected rate cut later this year, and the Hong Kong government’s removal of property curbs last month, will both encourage property transactions.”

“Companies will be more willing to borrow money at a cheaper funding cost to expand their business. The rate cut will also lead investors to shift their investments from US dollar assets to emerging markets in Asia and Hong Kong.”

Other lenders later today will announce whether they will change their prime rates and deposit rates. They raised their prime rates five times since September 2022 by a total of 87.5 basis points to the highest since 2007.

Bank of China (Hong Kong), HSBC and its subsidiary Hang Seng Bank last raised their prime rates in July by 12.5 basis points to 5.875 per cent. The rate at Standard Chartered, Bank of East Asia, Citigroup, and CCB Asia increased by the same margin to 6.125 per cent.

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