Editorial | Latest interest rates rise shows need to get Covid balance right in Hong Kong
- On the brink of recession, the last thing the city wanted was another increase by the US Federal Reserve. For the sake of business and investors, authorities must now make some bold decisions
An inevitable rise in local interest rates is untimely for housing and business borrowers, with Hong Kong mired in low growth, on the brink of recession, and facing a further cut in economic forecasts. It will test – or showcase – the resilience of the city’s banking system and property market and the prudence of lending practices.
This follows the latest 75-basis point rise in the United States Federal Reserve benchmark rate, reflected immediately in the Hong Kong Monetary Authority’s base rate under the linked exchange rate system. But the news for borrowers was cushioned with HSBC, the largest of the city’s lenders, keeping its prime rate for most people unchanged for the time being at 5 per cent, a lead expected to be followed by other big lenders.
And Financial Secretary Paul Chan Mo-po reassured the public that Hong Kong’s property market is resilient enough to stand the test, thanks to strong demand, and banks having sufficient safeguards in place to prevent a blowout of housing-related bad debts.
The bad debt ratio stood at 0.98 per cent in May, while the capital adequacy ratio stood at 20 per cent. “There is little chance of US interest rate rises bringing any damage to the local banking system,” Chan said.
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HKMA chief executive Eddie Yue Wai-man said the rate rise would not affect the banking system or bad debts as the authority had introduced measures to ensure borrowers could repay their loans even amid a rising rate environment.
