Hong Kong lending rates could rise an additional 100 basis points after last week's adjustment to the dollar peg set the stage for banks to mirror any tightening in the United States, according to BNP Paribas' chief economist and head of fixed income research. Andrew Freris told a press briefing yesterday that he was 'delighted' by the Hong Kong Monetary Authority's decision to make the peg symmetrical. The previous system had resulted in abnormally low interest rates as there had been pressure on the Hong Kong dollar to appreciate on the back of expectations for a yuan revaluation, Mr Freris said. 'Even longer-term Exchange Fund notes and bills were yielding less than US government bonds, which meant the market was saying that it was more risky to invest in US government securities than in Hong Kong securities,' he said. 'Flattering, but it had nothing to do with the intrinsic risk.' However, the introduction of a ceiling which the local currency would not be allowed to break through meant rates would go up significantly, he said. This is already evident in the 45-basis-point rise in three-month money market rates to about 3.1 per cent since last Thursday and yesterday's 50-basis-point increase in bank lending rates to between 5.5 per cent and 6 per cent. 'I expect an increase of not less than another 50 basis points in three-month [Hong Kong interbank offered rates]. Prime rates will depend on what happens to the banks' cost base, but I wouldn't be surprised to see another 50 basis points by year end,' said Mr Freris, who also expected the US federal funds rate would rise to an above-consensus 4.25 per cent by year end from 3 per cent now. Mr Freris stressed that he saw no link between the change in the Hong Kong dollar peg and a potential adjustment to the yuan exchange rate in the next 12 to 18 months, which he believed would be no more dramatic than a 3 per cent to 5 per cent widening of the existing trading band.