June interest rate rise likely the last this year, says HSBC adviser
The widely anticipated US Federal Reserve interest rate rise, expected to take place within the next two weeks, will be the last adjustment this year, according to George Leung Siu-kay, an adviser to HSBC Asia-Pacific.
Leung’s comment came as the Fed indicated in minutes from a previous meeting that the policy meeting to be held on June 14 is likely to result in a tightening of monetary policy. The market is expecting an increase of less than 0.25 per cent in the base rate, after it was raised by 0.25 per cent in March.
Speaking at the Wise Business Summit in Hong Kong on Monday, Leung said the chance of another interest rate increase, as expected by the market, before the end of 2017 is “very low”.
“The US economy is not facing inflation problems, which is usually the main reason why the Fed adjusts the interest rate,” Leung said. “The US is also in need of more lending and spending activity to boost the economy for the government’s new plans.”
Leung said the fact US employers had recorded a 1.9 per cent increase in the costs of compensating their staff has led to an almost flat inflation level.
He also said the US$1 trillion infrastructure plan and the low-tax proposal laid out by Donald Trump’s administration meant the country would need an active economy to meet the costs.
Despite having followed the Fed’s last interest rate increase in March, Leung said it is unlikely that the Hong Kong Monetary Authority will follow suit this time around.
“There is limited room for Hong Kong banks to increase interest rates because the Hong Kong inter-bank offered rate is at a low level, it is very distant from the level in the US,” he said.
Leung said the current Hong Kong aggregate balance is at an ample level of HK$260 billion, and the outflow of this capital would take at least six months to a year. He said this would limit the possibility of banks raising their interest rates.
“Even if there is an interest rate increase in Hong Kong, it will not create a cooling effect on the heated property market,” Leung added.
He noted that both local factors such as public sentiment for buying property and the limited land supply are the major contributing factors to the soaring property prices in the primary market. Leung expects the interest rate to have minimal effect on the property market unless it goes up to by 2 to 3 per cent, which he deemed unlikely in the short term.