Hong Kong analysts expect one last Fed rate increase in 2023, but are divided if HSBC and peers will raise prime rates

Twelve analysts surveyed by the Post expect the Fed to raise its key rate this week, with most agreeing it would likely be the last increase in the current cycle

They are equally divided if HSBC, Standard Chartered and other local banks will refrain from increasing their lending rates amid a rise in funding cost

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Analysts are split on whether HSBC and its local peers will raise their prime rates. Photo: Handout

Published: 8:00am, 3 May 2023

The Federal Reserve is likely to make its last interest-rate hike in the current tightening cycle in a widely expected move later this week, analysts said. Still, they are divided on whether the city’s leading commercial banks will raise their lending rates.

That decision and subsequent reactions will be front and centre for global markets this week as Fed policymakers meet in Washington on Wednesday. They are odds-on to lift the target rate by a quarter-point, to a range of 5 per cent to 5.25 per cent, according to Fed fund futures. That would be the 10th straight increase since March 2022, totalling 500 basis points.

“The US rate-hike cycle will end after this week’s meeting,” said Kirk Wong, global markets and foreign-exchange strategist at Everbright Securities International. “Many US lenders have tightened their loan policies, hence individuals and corporates have found it hard to get funding” after several bank failures this year, he added.

The risk of recession in the US has increased, says Kirk Wong, a strategist at Everbright Securities. Photo: Enoch Yiu

All 12 Hong Kong-based analysts surveyed by the Post last week were unanimous in their view on the hike. Eight of them, including Wong, said the Fed would then pause to reassess recession risks. Four others believed the US policy “lift-off” that began in March last year may persist, given the still-elevated inflation pressure.

The analysts, however, are equally split on whether HSBC, Standard Chartered, Bank of China (Hong Kong) and their local peers will raise their prime rates. Hong Kong banks raised their lending rates only three times in 2022 while the Fed tightened seven times. They did not follow the Fed’s two increases earlier this year.

This has left the local stock market in a bind, with the Hang Seng Index struggling to regain upside momentum after sliding 12 per cent from this year’s peak in late January in a HK$4.8 trillion (US$610 billion) rout. Also at risk is a nascent recovery in domestic home prices, which climbed to a six-month high in March.

Bruce Yam, an independent currency analyst, said investors should brace for higher borrowing costs, citing renewed pressure on the Hong Kong dollar from the widening gap between local and US interest rates.

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