HSBC and Hang Seng will increase the rate from Friday, while the other three lenders will do so on Monday. All five will also boost their Hong Kong dollar savings rates by 25 basis points to 0.375 per cent.

“In deciding the level of adjustment today, we have assessed the implications of recent economic reports, affordability for borrowers and interest to depositors,” said Luanne Lim, CEO of HSBC Hong Kong. “We will continue to monitor the external environment and would be prepared to adjust our rates as appropriate, with a view to supporting a broad-based economic recovery in Hong Kong.”

All the increases will be twice as much as a previous rate rise in September. Other banks in the city are expected to follow suit.

“If the US continues to raise interest rates, it is expected that the Hong Kong dollar interbank rates will continue to rise,” HKMA CEO Eddie Yue Wai-man said in a statement. “The public should be prepared for the commercial interest rates to rise further, and carefully assess and manage the relevant risks when making property purchases, mortgages or other borrowing decisions.”

The local one-month interbank offered rate rose to 3.2 per cent on Thursday, while the three-month rate jumped to a 14-year high of 4.72 per cent, and the 12-month rate surged to 5.32 per cent.

Financial Secretary Paul Chan Mo-po played down fears surrounding the rate rise. The city has a resilient banking system and foreign currency reserves of around US$430 billion, about 1.7 times Hong Kong’s monetary base, he told bankers on the final day of the Global Financial Leaders’ Investment Summit.

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“If you bet against the Hong Kong dollar, you are bound to lose,” he reiterated his recent warning to currency speculators. “You can verify this with certain hedge fund managers in the US who have been wrong about the Hong Kong dollar time and again,” Chan said without naming them, drawing chuckles from the audience.

“Market expectations for future interest rates have edged marginally higher, with most 2023 rates moving to new cycle highs,” said Paul O’Connor, head of multi-asset at Janus Henderson Investors. “Futures prices indicate that the Fed will raise rates by about 50 basis points in December and by a similar amount in the first quarter, to a peak of around 5 per cent.”

The Hang Seng Index halted a two-day rebound, falling 3.1 per cent to 15,339.49 on Thursday close, bringing this year’s slide to 34 per cent. Stocks in Australia dropped 1.8 per cent, while markets in South Korea lost 0.3 per cent and Taiwan retreated by 0.8 per cent.

The US markets were spooked by the Fed chairman Jay Powell’s hawkish tone, which leaves the door open for further aggressive rate increases, with economists predicting inflation to reaccelerate to 10.4 per cent in October.

HSBC and other lender’s move surprised analysts. Hong Kong’s commercial banks were expected to increase their prime lending rate by 12.5 basis points to between 5.25 per cent and 5.375 per cent, they said before the HKMA’s decision on Thursday.

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“The outflow from the banks’ current and savings accounts to other banks and to US dollar deposits may start to exert pressure” on Hong Kong’s banks, said Tommy Ong, managing director of T.O. & Associates Consultancy. “An increase of 0.125 per cent on both the prime rate and savings rate seems the most palatable option to them.”

In Hong Kong, many outstanding home mortgages are based on prime, the rate that banks charge their best customers. The prime rate is used as a benchmark to price many personal and corporate loans.

A customer with a 30-year HK$5 million (US$637,000) loan will have to pay HK$1,324 more per month after a 75-basis-point rise, according to mReferral.

Additional reporting by Zhang Shidong