HKMA cautions market on interest-rate risks as Fed signals policy easing ‘as soon as’ September Hong Kong’s de facto central bank has cautioned the public to be vigilant about interest-rate risks as traders speculated the US Federal Reserve will start cutting its key policy rate from next month, saying the outcome or trajectory is far from certain. “Based on the Fed’s public communication, a rate cut might happen as soon as the meeting in September,” the Hong Kong Monetary Authority said in a statement. “Yet, it remains uncertain whether the pace of easing will follow market expectation. The public should carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions.” The caution came after the HKMA kept its base rate unchanged at 5.75 per cent early on Thursday. Hours earlier, the Fed maintained its target rate in the range of 5.25 per cent to 5.5 per cent after concluding its fourth rate-setting committee meeting this year. HSBC, its subsidiary Hang Seng Bank, and Bank of China (Hong Kong), maintained their prime rate at 5.875 per cent, while paying 0.875 per cent per annum on savings deposits of more than HK$5,000 (US$640) and nothing on deposits below the threshold, the three banks said in separate statements. Standard Chartered and Citibank kept their lending rates at 6.125 per cent. While the Fed made no move this time, chairman Jerome Powell signalled a shift in favour of policy easing as early as the Fed’s open-market committee meeting on September 18, as widely expected by market participants. “The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labour market,” Powell said after the meeting. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.” Rate traders have fully priced in a cut of 25 basis points or more at the September meeting, according to odds compiled by CME Group, based on Fed funds futures contracts. Core US inflation, which includes all items except food and energy, rose 3.4 per cent in May, compared with 3.6 per cent in April. That is slightly lower than the 3.8 per cent increase in March but is still above the Fed’s target of 2 per cent. Positive signals from the Fed fanned a rally on Wall Street. The S&P 500 index climbed 1.6 per cent, while the Nasdaq 100 rose 2.8 per cent, led by an 11-per cent jump in Nvidia stock. In Hong Kong, the benchmark Hang Seng Index weakened 0.2 per cent on Thursday close, spooked by data showing a contraction in Chinese manufacturing. JPMorgan Asset Management expects the Fed to cut its target rate in September and December, followed by four 25-basis-point reductions in 2025, its global market strategist Raisah Rasid said in a report. There are plenty of reasons to be constructive on Asian markets, “amid positive factors such as ongoing corporate governance reforms and supply-chain adjustments”. T Rowe Price believes the Fed will introduce one cut in September, and one cut in each of the following six quarters, bringing the rate down to 3.5 per cent by March 2026, Tim Murray, capital markets strategist at the US asset management firm, said in a research note on Thursday. The HKMA has followed the Fed’s monetary policy in lockstep since 1983 under its linked exchange rate system to preserve the local currency’s peg to the US dollar. Commercial banks, however, can decide when to change their deposit and lending rates, which usually come some months after the moves of the central banks. “There is no pressure for Hong Kong’s [commercial] banks to move in tandem with a US rate cut,” said Ryan Lam Chun-wang, Hong Kong head of research at Shanghai Commercial Bank. “The first time Hong Kong lenders cut their prime rate may be in mid 2025.” The HKMA and the Fed have kept their key lending rate at the current level since July 2023, when they raised rates by 25 basis points. The US and Hong Kong increased their rates 11 times between March 2022 and July 2023, taking them to the highest level in almost two decades. The city’s lenders raised their prime rates five times from September 2022 to July 2023 by a total of 87.5 basis points, hitting the highest level since 2007. https://www.scmp.com/business/banking-finance/article/3272711/hong-kong-keeps-base-rate-unchanged-us-fed-paves-way-cut-soon-september (ICE HONG KONG)

Fonte notizia: South China Morning Post