Hong Kong interbank rates rose slightly on Thursday morning. The one-week Hibor, or Hong Kong interbank offered rate, rose to 4 per cent, up 3.6 basis points from a day earlier, according to data from the Hong Kong Association of Banks. The one-month Hibor was flat, while the three-month Hibor rose 0.4 basis points to 4.734.
The HKMA has followed US rate decisions in lockstep since 1983 when it pegged the local currency with the US dollar.
In a press conference, Fed Chairman Jerome Powell said the central bank does not yet have the confidence to lower interest rates. Even though inflation has fallen from a peak of 9.1 per cent in mid 2022 to 3.3 per cent in May, it remains above the US central bank’s 2 per cent target.
“These dynamics can continue as long as they continue,” Powell said. “We will need to see more good data to bolster our confidence that inflation is moving sustainably toward 2 per cent.”
Still, the newly released May inflation level of 3.3 per cent is lower than market estimate of 3.4 per cent. The cooling trend has led 62 per cent of traders to bet the Fed will start cutting interest rates in September, while 75 per cent believe rates will be cut in November, according to the CME FedWatch Tool, which tracks Fed fund futures pricing data.
“The Fed could still move two times this year if inflation figures continue to soften,” Kerry Craig, global market strategist at JP Morgan Asset Management, said in a research note after the Fed decision.
“The markets should take away the impression of a central bank that is still on a policy easing path, even if it is coming later. An expanding US economy should benefit global growth and Asian exports, as seen in the recent data. This should support Asian equity markets, offsetting some of the risks associated with the strengthening of the US dollar due to delayed rate cuts.”
Hong Kong’s benchmark Hang Seng Index rose 1.3 per cent in early trading on Thursday, following an overnight US stock market rally that saw the S&P 500 jump 0.9 per cent to a record high of 5,421 and the Nasdaq Composite gain 1.5 per cent to an all-time high of 17,608.44.
A rate cut later this year would be helpful to the Hong Kong property market, as lower borrowing costs would ease the burden for Hong Kong mortgage holders and those who need bank loans to do business.
“The Hong Kong dollar exchange rate remains stable, and the Hong Kong dollar interbank rates might remain high for some time,” the HKMA said. “The public should carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions.”