HKMA warns high interest rates ‘may last for some time’ as it delays cutting the cost of funds in lockstep with US Fed

HKMA warns high interest rates ‘may last for some time’ as it delays cutting the cost of funds in lockstep with US Fed

Hong Kong’s monetary authority said high interest rates may “last for some time” because America’s inflation remained stubbornly high, a situation which may weigh on the city’s mortgage borrowers, with the number of negative-equity loans at a 20-year high.

The US Federal Reserve, the anchor of Hong Kong’s monetary policy since 1983, “has not yet gained enough confidence about the US inflation trajectory to start cutting interest rates,” the city’s de facto central bank said in a statement. “The Fed’s future interest rate decisions will be dependent on incoming data, the evolving outlook and the balance of risks.”

Hours earlier, the HKMA kept Hong Kong’s base rate unchanged for the sixth time at 5.75 per cent in lockstep with the Fed’s move. In his press conference, the Fed’s Chairman Jerome Powell said that “inflation has shown a lack of further progress toward our 2 per cent objective.”

“It is likely that gaining greater confidence will take longer than previously expected,” Powell said.

Powell sought to assure the market, saying that it would be “unlikely” for the Fed’s next move to raise rates, adding that officials would need to see “persuasive evidence that policy is not tight enough” before taking action.

Hong Kong keeps rate at 5.75% as Fed watches over US inflation

Hong Kong’s stock market advanced after the latest move, following the overnight rally in the US bond market that was unleashed by Powell’s assurance. The city’s benchmark Hang Seng Index rose for the eighth day, gaining by as much as 1.5 per cent in recent trading.

Hong Kong’s declining home prices dragged more mortgage borrowers into negative equity, putting them under greater financial strain as property prices show little prospect of rising amid a lethargic housing market and high interest rates.

The number of so-called upside down loans almost tripled to 32,073 in the first quarter from the fourth quarter of last year, according to data released by the Hong Kong Monetary Authority (HKMA) on Tuesday. These were the most since some 40,000 cases were recorded in the first quarter of 2004 following the severe acute respiratory syndrome (Sars) epidemic, according to data from mortgage broker mReferral.

The aggregate value of negative-equity loans rose to HK$165.3 billion (US$21.1 billion), compared with HK$131.3 billion at the end of December.

“The public should carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions,” the HKMA reiterated. “The HKMA will continue to closely monitor market developments and maintain monetary and financial stability.”



Read More

Leave a Reply