Hong Kong Interbank Rate Tops 1% for First Time Since 2008

Updated on
  • Rise seen adding stress on banks to hike key mortagage rate
  • There’s higher chance of a prime rate rise in 1Q 2018: DBS

The Hong Kong dollar’s one-month borrowing cost rose above 1 percent for the first time since the global financial crisis, putting pressure on local lenders to increase a key measure that influences mortgage rates.

The one-month Hong Kong Interbank Offered Rate climbed four basis points to 1.00304 percent, the highest since December 2008, according to data posted on the Hong Kong Association of Banks’ website. The three-month rate added six basis points to 1.18927 percent, while the overnight cost declined.

A combination of year-end demand and an imminent Federal Reserve interest-rate hike are underpinning interbank rates in Hong Kong. Fed tightening will prompt similar action in Hong Kong, which imports U.S. monetary policy because of a currency peg to the greenback. There’s now a higher chance for local banks to raise their prime rates in the first quarter, said Alex Cheung, head of the institutional banking group at DBS Bank (Hong Kong) Ltd.

To read more on the threat to Hong Kong home prices, click here

“The market is following the U.S. because it expects a Fed rate hike to happen, and it’s near year-end and month-end, so there are some seasonal factors,” said Terry Siu, treasurer at Wing Lung Bank Ltd. in Hong Kong. “This sends the message the prime rate may need to go up.”

The prime rate, which is individually set by banks, forms the basis of caps on floating mortgage rates in Hong Kong. When the prime rate is raised, home owners will start to pay higher interest on loans. For example, here’s how a common mortgage payment in the city is calculated:

1-month Hibor on WednesdaySpreadEffective floating rateHSBC Prime RateSpreadEffective cap rate

Still, higher local rates may not have a significant impact on the economy because they’re within expectations, DBS’s Cheung told reporters on Wednesday. Mortgage rates remain low, he said.

Recent increases in Hibor have helped it catch up with its American peers, supporting the local currency. The Hong Kong dollar was 0.03 percent weaker at HK$7.8055 against the greenback as of 6:02 p.m. local time on Wednesday.

— With assistance by Alfred Liu

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