Hong Kong braces for increase in prime interest rate after imminent US Fed action to rein in 40-year-high inflation
- The head of the HKMA and analysts believe the local rate rise will be quicker this time after an expected increase of 75 basis points by the US Fed on Thursday
- Hongkongers with mortgages would face higher payments amid the first increase in the local prime rate in four years
Hongkongers with mortgages should brace themselves for higher monthly payments, as banks are set to increase the prime rate for the first time in four years in response to an expected rate increase later this week by the US Federal Reserve, which is determined to curb 40-year-high inflation, according to analysts.
Hong Kong banks last increased the prime rate by 0.125 percentage points in September 2018, which came after nine increases of the US interest rate between 2015 and 2018. But the head of the Hong Kong Monetary Authority and financial analysts all believe the local rise will arrive much quicker this time.
“Compared with the last rate-hike cycle, the market generally expects the US rate-hike cycle this time will be quicker and more aggressive,” said Eddie Yue Wai-man, chief executive of the HKMA, in a statement posted on the HKMA website on Friday.
The US Fed is expected to raise the interest rate by 75 basis points on Thursday to curb inflation. This will bring the key rate to a range of 2.25 per cent to 2.5 per cent, as the US central bank acts with urgency to rein in inflation, said Kirk Wong, global market and FX strategist at Everbright Securities International.
Some market participants are even predicting a full point rise, after US inflation rose to a fresh 40-year high of 9.1 per cent in June.
