Bank of China

Banks braced for Fed cut

PUBLISHED : Wednesday, 06 November, 2002, 12:00am
UPDATED : Wednesday, 06 November, 2002, 12:00am

Hong Kong banks are bracing for another reduction in United States interest rates likely to be unveiled tonight - but will resist matching the expected cuts to avoid 'negative rates' on savings deposits.

Bankers expect a 25 to 50 basis point cut in the Fed funds target rate from 1.75 per cent.

After successive Fed cuts, Hong Kong deposit rates - which closely track the US because of the currency peg - have been driven close to zero (0.125 per cent).

If banks follow the Fed's move, rates would fall below zero, meaning customers might pay to keep their money on deposit. But that was unlikely, bankers said.

'Maybe some banks will have zero deposit rates - but I don't think that negative interest rates are going to happen,' Standard Chartered chief executive Peter Wong Tung-shun said yesterday.

Bank of China chief executive and vice-chairman Liu Jinbao, who took part in this year's China Business Conference, echoed his comment. 'I think we don't want to see a negative interest rate. The current interest rate is already very low,' Mr Liu said.

Mr Wong, who was speaking yesterday at the launch of Standard Chartered's new online business-to-business trading platform, also revealed that it had been granted a licence to join foreign banks allowed to start Internet banking in China.