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Hong Kong banks could cut interest rates to a record low 5% by 2025, benefiting properties and the economy

After the US Federal Reserve and the Hong Kong Monetary Authority (HKMA) cut their key policy rate by a full percentage point in 2024, at least two more rates are possible next year, according to analysts.

Hong Kong banks, meanwhile, could further cut interest rates to an all-time low of 5 percent, which would benefit the economy and the property sector, she added.

The market expects the Fed to pause rate cuts in the first half of 2025, followed by two or three cuts in the second half for a total of 50 to 75 basis points, according to 10 analysts surveyed by the Post.

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“The US will continue to cut interest rates next year, but the pace and frequency of rate cuts may be less than initially expected,” HKMA CEO Eddie Yue Wai-man said on December 19.

The HKMA cut its base rate to 4.75 percent, the lowest since December 2022. Photo: Jonathan Wong alt=The HKMA cut its base rate to 4.75 percent, the lowest since December 2022. Photo: Jonathan Wong>

Hong Kong’s de facto central bank cut its key interest rate to 4.75 percent, the lowest level since December 2022, after the Fed cut its interest rate by the same amount to a range of 4.25 to 4.50 percent. Both institutions cut their policy rates by a full percentage point in 2024, while local commercial banks cut their prime rate, the interest rate offered to their best customers, by 62.5 basis points.

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However, the Fed’s rate outlook was aggressive, pointing to just two cuts in 2025.

“The [Fed’s rate cut] The decision will depend on inflation and unemployment rates, as well as the general economic environment,” said Eric Tso Tak-ming, chief vice president of mortgage broker mReferral.

“If inflation remains under control, the Fed could cut rates at least three times, bringing rates down to 3.75 percent next year. Hong Kong lenders may follow this and reduce their base rates.”

Bank of China (Hong Kong), HSBC and its subsidiary Hang Seng Bank have set their prime rate at 5.25 percent, while it currently stands at 5.5 percent at Bank of East Asia, Standard Chartered and ICBC Asia. The lowest prime interest rate in Hong Kong has fallen to 5 percent. From 2009 to 2018 and again from 2019 to November 2022 it was at this level.

“A continued trend of interest rate cuts will lower borrowing costs and reduce mortgage repayments, which will benefit Hong Kong’s property market and overall economy,” said Raymond Yeung, chief economist for Greater China at ANZ Banking Group.

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