NewFed rate rise sparks caution in China as Hong Kong braces for cash outflow

Beijing and Hong Kong reacted with caution to the US Federal Reserve’s decision to raise interest rates for the first time in almost a decade, which sparked a global rally in stocks and pushed up the US dollar.

The US central bank raised its benchmark rate by 25 basis points, ending the near-zero interest rate regime that has flooded the world with cheap money and inflated asset values across the board.

“The Fed rate hike will have some direct or indirect impact on China’s external trade and international investments. Further analysis is required to determine the extent,” Chinese commerce ministry spokesman Shen Danyang said yesterday.

READ MORE: Hong Kong’s property market downtrend to last for 2 to 3 years as Fed continues policy tightening

Hong Kong Monetary Authority (HKMA) chief executive Norman Chan Tak-lam said investors need to prepare themselves for shock in stock and property markets as the Fed move ends the era of easy money.

“A prolonged period of low-interest-rate environment in the US has led to US$130 billion of capital inflows to the city over the past few years. This money will start flowing out as the US normalises its interest rate cycle,” Chan said.

“The public would need to carefully prepare themselves for the shock in the investment markets due to more interest rate rises,” he said.

Chan said the rate rise will add to the cost of homeowners but added the HKMA has no plans to relax the property curbs imposed in recent years to cool down the sizzling market.