Cash flowing into Hong Kong keeps lending rates down, but for how much longer?
Lending rate divergence may narrow later this year, boosting bank stocks while hurting property developers
The cash that keeps flowing into Hong Kong is keeping interest rates down, say analysts, despite the Hong Kong Monetary Authority’s best efforts to make mortgages more expensive and cool Hong Kong’s red hot property market.
This has meant that while the HKMA has followed the US Federal Reserve in raising the base rate three times in the past seven months, the Hong Kong interbank offered rate, or Hibor, has lagged behind the US dollar benchmark, the US dollar Libor (London interbank offered rate).
At the start of this year, three month Hibor and three month Libor stood at broadly similar levels, but as of June 30 the spread had widened to 52 basis points.
The majority of mortgages in Hong Kong are pegged to Hibor , so as that remains low, monthly costs for repaying mortgages also remain low.
There is also no need for banks to change the rates they offer to lenders and savers if so many funds are available.