HKMA says interest rate outlook uncertain as it follows Fed, keeps base rate unchanged

The Hong Kong Monetary Authority (HKMA) has warned the public to beware of interest rate risks after it kept its base rate unchanged, following a similar move by the US Federal Reserve, as the city’s de facto central bank said the Middle East conflict has added to the uncertainty over the pace of rate cuts this year.

HKMA maintained the city’s base rate at 4 per cent on Thursday. Hours earlier, the Fed kept its target rate in the range of 3.5 per cent to 3.75 per cent, after the second meeting of the Federal Open Market Committee (FOMC) this year.

HSBC, Standard Chartered and Bank of China (Hong Kong), the city’s three note-issuing banks, said they would keep their prime lending and savings rates unchanged. Other lenders are expected to announce their rate decision soon.

The decision to keep rates unchanged came as no surprise to the market. Savings rates have been cut close to zero since October, while any reduction in the prime rate would erode banks’ net interest margin, affecting their profitability.

“The market generally considers that the path of US monetary policy remains quite uncertain, while recent tensions in the Middle East region introduce greater uncertainty to oil prices as well as the outlook for US inflation,” the HKMA said in a statement.

“The future trend of US interest rates is quite uncertain, which may influence the interest rate environment in Hong Kong. The public should carefully manage interest rate risks when making decisions about property purchase, investment or borrowing.”