HKMA ups rates, matching Fed, says banks’ bad loans remain steady By Reuters

HONG KONG (Reuters) -The Hong Kong Financial Authority (HKMA) on Thursday raised its base charge charged by way of the in a single day low cost window by 25 foundation factors to five.75%, the best in 16 years, hours after the U.S. Federal Reserve delivered a charge hike of the identical margin.

Instantly after the announcement the Hong Kong greenback strengthened to 7.7951 per greenback, its strongest stage in eight months.

Hong Kong’s financial coverage strikes in lock-step with america as the town’s foreign money is pegged to the buck in a decent vary of seven.75-7.85 per greenback.

The Federal Reserve raised rates of interest by 1 / 4 of a proportion level and Fed Chair Jerome Powell stated the economic system nonetheless wanted to gradual and the labour market to weaken for inflation to “credibly” return to the U.S. central financial institution’s 2% goal.

“Beneath the linked alternate charge system, Hong Kong interbank supply charges will monitor the U.S. charges intently in order that the unfold between the 2 step by step narrows,” HKMA appearing chief government Arthur Yuen advised a media briefing.

Whereas corporates might face increased prices on Hong Kong greenback financial institution loans, “we’ve not but seen that the upper funding prices impacting banks’ shoppers straight.”

“Categorized loans”, or these which can be overdue for not less than 30 days along with these which can be deemed uncollectible, have stayed regular from the top of final yr, at 1.4% within the first quarter this yr.

Whereas Hong Kong’s official base charge follows the Fed’s coverage charge, banks aren’t obliged to stay in lock-step with U.S. charges, particularly once they see ample liquidity cushion within the system, as interbank charges are additionally influenced by demand and provide, analysts stated.

One other seasonal issue that has led Hong Kong interbank provided charges increased in latest months is firms’ demand for the native foreign money for dividend funds, Yuen stated, which historically peaks from June to August.

This has led the one month Hong Kong interbank charge, the benchmark that banks use to cost their residential mortgage loans, to surge to a 16-year excessive of 5.21% earlier this month, because it caught up and exceeded the one-month U.S. secured in a single day financing charge (SOFR) earlier than trending decrease this week.

“We count on Hong Kong greenback charges to stay excessive because the Fed is unlikely to reverse its tightening to an easing this yr,” stated Ken Cheung, chief Asian FX strategist at Mizuho Financial institution.

The top of dividend flows from Hong Kong-listed Chinese language firms after August will assist loosen Hong Kong greenback liquidity circumstances, he added.