Home buyers and other bor rowers will see loan repayments fall from Monday after a 0.25 percentage point interest rates cut. The cut - the third this year - will ease financing costs for companies battling the recession. However, bankers and analysts said the cut would bring limited relief to the economy. Unemployment was still rising and the business environment remained difficult. Leading banks yesterday cut their prime lending rate from 9.75 per cent to 9.5 per cent after the Association of Banks reduced the rate paid on deposits by the same margin to 4.75 per cent. For a home buyer with a 20-year mortgage, the cut will mean a monthly saving of $160 for every $1 million borrowed. The Hang Seng Index, which had factored in a rate cut, fell 79.94 points to 10,233.36 yesterday. It was up 235.37 points on the week. A cut had been expected since the US Federal Reserve reduced rates on Tuesday. Association chairman Mervyn Davies said the SAR could see another cut in the coming weeks or months even without a corresponding move in the United States, he said. 'I think that a gradual easing of interest rates is more advisable than some increases upwards or sharp decreases,' Mr Davies said. 'We have to be careful that we don't think every time the US cuts, there will be a cut here. We are a separate market.' There were 0.25 percentage point cuts in March and mid-October. Mr Davies said yesterday's move did not indicate the crisis was over. 'I think we need to get back to a low interest rate environment gradually. We must not allow ourselves to be thinking that the crisis is over or the problems are over. They are not.' Wing Lung Bank executive director Chung Che-sum said the reduction would help the economy marginally, but would improve sentiment for the loan market and domestic consumption. He said banks were waiting for more favourable evidence before they could be convinced of real improvement in the underlying economy and regain confidence in lending to companies. Landscope Surveyors managing director Koh Keng-shing said the cut would give psychological support to the property market which could encourage buyers. He said home prices would at least stabilise at current levels but were unlikely to rebound because of uncertainties clouding the economy and job security. Citibank sales and distribution director Sunny Cheung Yiu-tong said the correction in home prices over the last 18 months had reduced the ratio of monthly mortgage payments to monthly household salaries from 70 per cent to a more healthy 50 per cent. He said banks would feel more comfortable to see prices and affordability ratio stabilise at the existing level rather than going up rapidly, a situation which would increase their risks of writing new home loans.
