Hong Kong follows US Fed with first rate hike in over three years
Sign up now: Get ST's newsletters delivered to your inbox
With the Hong Kong Monetary Authority’s rate hike on Sept 17, the focus now shifts to any moves the city’s biggest banks, including HSBC and Standard Chartered, will announce later in the day.
PHOTO: BLOOMBERG
- The Hong Kong Monetary Authority raised interest rates by 25 basis points to 4.25%, following the US Federal Reserve's first hike since 2023 to maintain the HK dollar peg.
- Higher US rates have strengthened the greenback, pushing the HK dollar near its weakest linked exchange rate level, affecting local borrowing costs and mortgage rates.
- The rate hike threatens Hong Kong's property recovery, which is expected to rebound strongly in 2026 due to Chinese demand, limited supply, and rental growth, despite cautious buyers.
AI generated
HONG KONG – The Hong Kong Monetary Authority (HKMA) followed the US Federal Reserve in raising interest rates for the first time since 2023, a decision that could threaten a property recovery unfolding since 2025.
The HKMA lifted its benchmark by 25 basis points to 4.25 per cent, according to a statement on Sept 17. The de facto central bank in the city moves in lockstep with the Fed to protect the local dollar’s peg to the greenback.
The focus now shifts to any moves the city’s biggest banks, including HSBC and Standard Chartered, will announce later in the day, including changes to their best lending rates.
In Hong Kong, the best lending rates are used as a base for banks to quote rates on mortgage loans, so they have an ability to encourage more credit and borrowing even as the benchmark tightens.
The one-month Hong Kong Interbank Offered Rate, a key mortgage reference rate, has climbed to 2.95 per cent – the highest in almost three months – while staying far below its US equivalent.
Higher rates in the US are encouraging traders to keep buying the greenback against its Hong Kong counterpart, as investors can earn a profit from the differential.
The Hong Kong dollar has been trading near the weakest level permitted under the city’s linked exchange rate system, which it last touched just over a year ago.
While the city’s economy is on an upswing thanks to booming trade, higher borrowing costs risk becoming a drag on a property market that has just emerged from a prolonged downturn, especially as buyers grow cautious over China’s efforts to curb mainland capital outflows.
Hong Kong home prices are expected to rebound the most in nearly a decade in 2026, driven by strong Chinese demand, limited supply and robust rental growth, according to Bloomberg Intelligence. BLOOMBERG