• Sun
  • Dec 28, 2014
  • Updated: 12:51pm

Prime lending rates head for 7.25pc

PUBLISHED : Tuesday, 09 August, 2005, 12:00am
UPDATED : Tuesday, 09 August, 2005, 12:00am

Banks shrug off impact on property as Fed rises set agenda


Hong Kong lenders are likely to match an expected move by the United States Federal Reserve to raise its Fed funds rate by another 0.25 per cent tonight, raising their prime lending rates by the same margin, to 6.75 per cent, bankers said.


And any further increases in US rates by Fed chairman Alan Greenspan later in the year were also likely to be matched in Hong Kong, they said, which means prime lending rates could reach 7.25 per cent by the end of the year from just 5 per cent when the year began.


Raymond Or Ching-fai, vice-chairman and chief executive at Hang Seng Bank, said there was a high probability local rates would be adjusted higher tomorrow.


Whether banks would increase both their prime lending rate and their savings deposit rate by the same amount would depend on the individual lenders, he said.


Early last month, banks increased their prime lending rates 0.5 per cent, although most increased their savings deposit rate only 0.25 percentage point. Later in the month, HSBC, the largest local lender, and Bank of China (Hong Kong) increased their prime lending rates 0.25 per cent but kept their savings rates unchanged.


The prime rate stands at 6.5 per cent while most savings deposit rates stand at 1.25 per cent.


Stanley Wong Yuen-fei, a director and deputy general manager at ICBC (Asia), said he believed banks would increase both prime and savings rates by 25 basis points since the spread between prime and the Hong Kong interbank offered rate had returned to normal.


Meanwhile, local lenders who earlier said they expected increases in US rates to stop once the Fed funds rate reached 3.75 per cent, have revised their forecasts.


Mr Or yesterday said he expected the Fed funds rate to rise a further 0.75 per cent by the end of this year (including today's expected 0.25 per cent adjustment), since US economic data showed the economy was still buoyant.


He expected Hong Kong rates would follow suit, lifting prime lending rates to 7.25 per cent by the end of the year.


However, he dismissed the impact of rising rates on the economy and property markets.


'The impact may be more on the psychological than the physical front. Even if the prime rate increased to 7.25 per cent by the end of the year, given that mortgage rates are prime minus 2 per cent, the real mortgage rate is around 5 per cent or so which is still at an historical low level,' he said.


Andrew Fung Hao-chung, the managing director of sales, treasury and markets at DBS Bank, said: 'Current economic figures [in the US] do not justify an end to the rises in interest rates.'


He expected the Fed funds rate would rise to 4 per cent by the end of the year.


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