Interest rates in the city may rise before the Fed increases US rates but it is too early to decide if the property curbs need to be rolled back, Financial Secretary John Tsang Chun-wah said yesterday.
Hong Kong and the rest of Asia could see an exodus of hot money after the US Federal Reserve's hint that its quantitative easing programme might be tapered later this year, Tsang said.
The Fed's cue has led to speculation that it may tighten liquidity in the near future by raising interest rates.
"Expectations of an increase in rates will affect property prices even though the US has not yet started raising the rates," Tsang said on the sidelines of an event hosted by the Hong Kong Association of Banks (HKAB).
Asked if property prices in the city would take a hit as interest rates went up, Tsang said it was difficult to predict the impact as Hong Kong still had adequate liquidity and the cost of holding property - the mortgage lending rate - was quite low. But he added that the risk of an asset bubble still loomed and that the government would monitor the situation closely and respond when required.
The interbank rate on the mainland has risen to record levels on the back of a liquidity squeeze. The 14-day interbank rate jumped to its highest this year, at 8.56 per cent.
Funds available for 14 days are vital for banks at present because they can help banks to meet the end-of-the-quarter book balancing. Next week will mark the end of the current quarter.
The seven-day interbank rate dropped to 8.54 per cent yesterday from 11 per cent the previous day, but is still well above last week's rate.
Tsang said interest rates in Hong Kong could also be affected if the situation persisted on the mainland.
But Standard Chartered Bank chief executive Benjamin Hung Pi-cheng, who is also the HKAB chairman, said he expected interest rates in Hong Kong to remain flat in the near future. "Hong Kong interest rates usually follow US rates, under the peg system," he said.
On whether the rising borrowing cost on the mainland would drive some of the firms across the border to look for funding in Hong Kong, Hung said banks here had their own lending quotas as they had to meet the city's regulatory requirements of cash reserves.
"The rate of growth in the Asia-Pacific region is well ahead of the rest of the world, and money will tend to stay in the growth region," Huang said.
Banks in Hong Kong have recently raised interest rates on deposits for retail customers. Hung said this could have been prompted by banks looking to attract the cash that will be freed up by refunds on inflation-linked bonds.