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Published: 09:53, July 28, 2022 | Updated: 16:59, July 29, 2022
HKMA raises interest rate by 75 basis points after Fed hike
By Wang Zhan
Published:09:53, July 28, 2022 Updated:16:59, July 29, 2022 By Wang Zhan

In this Oct 24, 2008 photo, a pedestrian walks past the building housing Hong Kong Monetary Authority's office in Hong Kong. (TED ALJIBE / AFP)

HONG KONG - The Hong Kong Monetary Authority on Thursday raised its base rate charged through the overnight discount window by 75 basis points to 2.75 percent, hours after the US Federal Reserve delivered a rate hike of the same margin.

Speaking after the HKMA's rate hike, Financial Secretary Paul Chan Mo-po said as the United States begins its rate hiking cycle, interest rates in Hong Kong are expected to rise, increasing the financial burden for homebuyers.

HSBC Holdings said on Thursday it would leave its best lending rate in Hong Kong unchanged at 5 percent

But he stressed that the city's banking system remains strong. The average loan-to-value ratio of newly approved mortgages is around 50 percent while the average debt-to-income ratio of homebuyers is just 37 percent, according to Chan.

The city's de factor central bank's Chief Executive Eddie Yue Wai-man said he expects Hong Kong's overnight and one-month interbank rate to continue to rise, but at a much faster pace. 

READ MORE: HKMA chief says Exchange Fund to ride out financial storm

The base rate is the interest rate set by the HKMA for lending to other banks, used as the benchmark for computing the discount rates.

It is currently set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is the higher.

This general view shows residential and commercial buildings in the Causeway Bay district of Hong Kong Island in Hong Kong on May 14, 2021. (ANTHONY WALLACE / AFP)

Yue said local commercial banks may also adjust their deposits and lending rates in the near future and that the public should assess rate hike risks when making investment decisions.

Financial Secretary Paul Chan said the government expects to cut Hong Kong GDP growth forecast for the whole year due to the deteriorating external environment that drags down Hong Kong's exports

"The public should adopt a prudent approach and assess interest rate hike risks when purchasing properties, taking new mortgages or making other investment decisions," Yue said.

READ MORE: Chan: HK economy to see mild growth once virus contained

But he stressed that US' rate hikes would not affect Hong Kong's monetary and financial systems, which have been operating in an orderly manner.

HSBC Holdings said on Thursday it would leave its best lending rate in Hong Kong unchanged at 5 percent.

Hong Kong tracks US interest rate moves because its currency is pegged to the US dollar, although banks in the global financial hub have some leeway to lag US moves when setting prime rates.

As for Hong Kong's economy, the finance chief said he expects to cut the GDP growth forecast for the whole year due to the deteriorating external environment.

"Though we expect to see a stronger growth in the second half than the first, it is unavoidable for us to cut the whole-year forecast for this year," Chan said, adding that details will be announced in mid-August.

ALSO READ: US inflation: Fed jacks rates again, Powell vows no surrender

The Federal Reserve raised the benchmark overnight interest rate by three-quarters of a percentage point. The move came on top of a 75 basis point hike last month and smaller moves in May and March, as the Fed stepped up efforts to cool inflation.

Fed Chairman Jerome Powell told a news conference following the rate announcement that he did not believe the US economy is currently in a recession but that it is softening.

With Agencies' inputs

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