Hong Kong's dollar-peg defense leaves bittersweet taste for borrowers as Hibor rises
"The room for carry trade is now trimming," said Samuel Tse, a senior economist and strategist at DBS Bank in Hong Kong.
The Hong Kong dollar strengthened to HK$7.7936 on Tuesday, the highest since mid-May. It was trading at HK$7.8172 on Friday.
With the higher Hibor, homeowners with loans pegged to that rate will feel the most pain: HK$4,418 (US$566) more per month as the monthly payment increases to HK$22,452 on a HK$5 million, 30-year mortgage priced at Hibor plus 1.3 per cent, according to local mortgage broker mReferral.
That figure represents a jump of nearly 25 per cent in monthly payment, based on Friday's mortgage rate of 3.5 per cent and a repayment of HK$18,034 on June 17, when the rate was 1.82 per cent.
Property developers and owners selling lived-in flats benefited as borrowers enjoyed three months of relatively low mortgage costs from May, when the Hibor hovered near a three-year low of 0.5 per cent, according to Eric Tso Tak-ming, chief vice-president of mReferral.
"Now the low-rate honeymoon period is over," he said. "With the rising Hibor rates, prospective homebuyers may choose to monitor market trends and interest-rate movements before making a purchase decision."
Tso said the higher Hibor would increase funding costs for the capital and property markets, but the impact could be manageable as the US may cut interest rates soon.
The overnight and one-month Hibor rates were likely to stay at around 3 per cent to 4 per cent in the near future, which would deter carry traders, Lo said.
The city's strong stock market and many popular initial public offerings recently had led to strong demand for the Hong Kong dollar, which would keep the Hibor between 2 per cent and 3 per cent, said Tommy Ong, managing director of T.O. & Associates Consultancy.
If the US Federal Reserve cut interest rates, the Hibor would decline and local commercial banks would soon lower their prime lending rates, Lo said.
However, Bank of East Asia (BEA) co-CEO Adrian Li Man-kiu said commercial banks could choose not to reduce their prime rates, even though BEA expected the US to cut its key rate by 50 basis points by the end of this year.
"The saving rate is very low at the moment, so it is hard to get much lower, and hence it would be hard to cut the prime rate lower," Li said at the bank's results briefing on Thursday.
Hong Kong's commercial banks trimmed their prime rate three times from September to December by a combined 62.5 basis points to 5.25 per cent or 5.5 per cent, while cutting their savings rate by the same margin to 0.25 per cent.
Ryan Lam Chun-wang, head of research for Hong Kong at Shanghai Commercial Bank, said the US would have two 25-basis-point cuts this year, accompanied by two 12.5-basis-point cuts in the Hong Kong dollar prime rate. The Hibor would stay above 2 per cent, he added.
If Hong Kong lenders were to cut the prime rate by 12.5 basis points twice, the rate would drop to a historic low of 5 per cent, and the savings rate would drop to zero.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.
Content Original Link:
" target="_blank">
