Fed rates expected to drag on SAR recovery

The prospect of further rate rises in the United States may slow the pace of Hong Kong's economic recovery, according to Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong.

The market expects the US Federal Reserve to raise interest rates by another 25 to 50 basis points this year.

'Under the peg-linked system, Hong Kong would need to follow these possible interest rate rises in the United States,' he said.

'If that happens, a higher interest rate would certainly have an impact on the speed of the recovery.' However, he believed the impact would not be too harsh as borrowers would still be able to access cheap funds, even after any rate rise.

This is due to fierce inter-bank competition for business, which has led to the offering of interest rates below the prime lending rate, particularly for mortgages.

Mr Yam also said most local banks were awash with liquidity and as a result could afford to offer loans at lower interest rates.