‘HK can cope with weaker currency, higher rates’

The head of the Monetary Authority has sought to reassure people that Hong Kong can handle the impact of the US Federal Reserve’s policy tightening, despite expectations that the weakening of the local currency and pace of interest rate rises could come faster this time.

“The rate hike in the US will not affect Hong Kong’s financial and monetary stability,” said HKMA chief executive Eddie Yue during a press briefing on Thursday morning.

The authority raised its base rate by half a percentage point to 1.25 percent shortly after the US Fed decision.

Yue said the local currency is likely to edge closer to the weak end of its trading band with the US dollar, as investors are expected to move their money into US dollars to take advantage of higher interest rates.

“As to how fast it will touch 7.85 and how fast it will reduce our aggregate balance to the extent that our Hong Kong dollar interest rates will start to rise, it will also depend on the supply and demand of the Hong Kong dollar funding market,” he noted.

“Almost definitely the adjustment this time will be faster than last time,” added the HKMA chief, referring to the previous round of Fed tightening between 2016 and 2018.

Following the Fed and HKMA decisions, HSBC and Standard Chartered announced that they were keeping their best lending rates unchanged.

Standard Chartered’s senior economist for Greater China, Kelvin Lau, said he does not see “immediate pressure” for local banks to raise their prime rates.

And even when banks eventually decide to lift their lending rates, Lau said the local economy should be able to cope with the impact.

“A lot of the companies and mortgagees have been preparing for higher interest rates for quite some time, if not for some years,” he explained.

“As long as the Covid-related restrictions continue to get relaxed, then I think the economy should be moving in the right direction, and enough to weather higher interest rates locally.”