With local lenders responding to Fed cut, prime drops below inflation level of 3.8pc
Hong Kong has fallen into a negative interest-rate environment after lenders matched the rate cut by the United States Federal Reserve, and analysts said another reduction of 50 basis points would probably follow next week to further boost the housing market while deepening the city's inflationary pressure.
As an immediate response to the Fed's sudden 75-basis-point cut on Tuesday, HSBC, Hang Seng Bank and Bank of China (Hong Kong) yesterday announced a reduction in prime lending rates - effective today - by the same margin to 6 per cent, the lowest since 2005. Standard Chartered Bank (Hong Kong), Bank of East Asia, DBS Bank (Hong Kong) and other small and medium-sized lenders reduced theirs to 6.25 per cent.
The result is a negative interest-rate scenario, reminiscent of the mortgage rate from 1991 to 1994. At 4 percentage points below prime, the mortgage rate now stands at between 3.1 per cent and 3.25 per cent, below the inflation rate measured at 3.8 per cent last month.
Property agents said negative mortgage interest rates would help bring the market back to 1997's peak levels faster, although the impact would not be immediate because of the forthcoming holiday break.
'It is the first time mortgages have had negative interest rates [when borrowing costs are lower than inflation],' said Wong Leung-sing, an associate director of Centaline Property's research department. However, 'transactions will not surge in the short term as the Lunar New Year is the low season traditionally'.