The Hong Kong Monetary Authority (HKMA) raised the base lending rate in lockstep with a widely expected move by the U.S. Federal Reserve overnight. According to the website of HKMA, the base lending rate raised by 25 basis points to 2.5 percent, effective immediately.
This latest move, which is the third this 2018 and the eight ever since the end of "quantitative easing" in December 2015, will force commercial banks in Hong Kong to raise the prime rate for the first time after 12 years. This translates to mortgage payments for loans that are tied to the prime rate.
This move will also track U.S. rate as its currency is pegged to the greenback.
According to the South China Morning Post, the monetary policy in the city has been tied to the United States to maintain the local currency's rate at HK$7.80 per US dollar. That only means in every move of the US Federation, it will mirror in equal in Hong Kong.
Just last week, the Hong Kong dollars suddenly had a sharp spike, and market watchers attributed to expectations of a rise in bank lending rates and tightness in cash supplies.
The officials of the US Federal Reserve bank raised interest rates by a quarter percentage point overnight and reaffirmed for further gradual hikes well into 2019. This also risks a fresh criticism from US President Donald Trump as it reflects an upbeat assessment of the economy that was similar to the last policy statement of central bank eight weeks ago.
"The stock market is unlikely to be moved by the rate increase because the move has been anticipated and telegraphed," said Christopher Cheung Wah-fung, a stockbroker and a city lawmaker. "The property market will have to prepare for a slowdown as the higher rate will add to homebuyers' mortgage payments."
The two types of mortgage loans in Hong Kong are those who are tied to the interbank offered rate (Hibor), and those who are tied to the prime rate.
On Monday, Hibor jumped 176 basis points to 3.38 percent. This is considered to be the highest level after 11 years, which only means higher payments for Hibor-linked mortgages.
Meanwhile, the rate is still between 5 percent and 5.25 percent for prime-linked loans although most commercial banks have increased their rate for large deposit sums and also raise the payment for new borrowers.
As per the data of the monetary authority, the outstanding mortgage loans in Hong Kong stood at HK$1.26 trillion (US$161.3 billion) at the end of June.
