The short-term money market rates in Hong Kong increased to their highest levels on Monday for the first time in ten years, as the Financial Secretary issued a warning to homebuyers to anticipate higher mortgages in response to the rise in the local expense of funds in lockstep with the United States benchmarks in the latter part of this week.
Hibor, which is the interbank offered rate by Hong Kong and a measure of the short-term lending between financial institutions with a 24-hour maturity, soared 176 basis points to 3.38 per cent, a level it has not attained since 2007. However, Hibor with one week and one month tenors increased to their highest points for the first time since 2008, thereby hiking 120 basis points to 2.87 per cent and 28 basis points to 2.17 per cent correspondingly.
Increased rates ensured the currency of the city is boosted for a third day, as the Hong Kong dollar was exchanged at the rate of 7.8091 per US dollar after its most substantial intra-day increase in fifteen years previous Friday, as a result of the anticipation of higher interest rates in the city. Most of the traders that were engaged in the transaction of arbitrage trades in the currency market by offering for sale lower yielding Hong Kong dollars for profitable US dollars are caught in the web and looking for a way out of the situation.
On the other hand, commercial banks have not increased their prime rates since 2008 even though the Hong Kong Monetary Authority, which serves as the city’s de facto central bank has been expanding its lending base in lock step with the Fed to ensure the Hong Kong dollar is pegged with the US dollar.
The local media outlet reported on Friday that the HKMA Chief Executive, Norman Chan Tak-lam confirmed that the banks in Hong Kong are required to regurgitate over increasing interest rates if the capital expenses increase in response to the widely expected US rate rise happening later this week. With visible signs that show that acquisition of funds is becoming more stringent and more expensive, some commercial banks increased their fixed deposit rates in a bid to continue a trend which began a few months ago.
According to Frances Cheung, the head of macro strategy, Westpac Asia, stricter liquidity conditions are responsible for the prompting anticipations for increased prime rates, which are inadvertently forcing Hibor higher.
In the words of, Asia currency strategist Eddie Cheung at Standard Chartered Bank, he said the squeeze in liquidity rates is somewhat announced with the quarter end approaching, and as a result of the strong funding demand for the public holiday Tuesday, and the national day coming up next week. Carie Li, an economist with OCBC Wing Hang Bank who is based in Hong Kong, he said that the Chinese hotpot chain Haidilao has halted about three billion Hong Kong (US$384.09 million) of capital meant for its initial public offering, which is due for release later in this week, and maintaining higher Hibor rates.
Any attempt to increase the prime rate of commercial banks would drive the rising real estate prices in Hong Kong nearer to a tipping point, with the highly leveraged nature of the property market of the city.
It is essential to pay attention to the signs of the waning property market as they are visible. For instance, Shu Qi, who is one of the highest earning actresses in China, offered her Tai Po Villa at a reduced cost of HK$2 million on Sunday. According to agents, the prices of home would fall over the next twelve months amidst expectations.
According to the Financial Secretary, Paul Chan Mo-Po, he said increased interest rates could adversely affect families with substantial mortgage responsibilities, resonating the caution he has announced on several occasions.
Current borrowers, with a total sum of HK$1.26 trillion in outstanding mortgage loans, are likely to be faced with similar pressure as there is a probability that banks are looking to improve their lending rate or prime rate, as early as this month ending; its first increase in twelve years.
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