UPDATE: Hong Kong Banks Keep Prime Rates Steady As HKMA Stands Pat
March 17 2010 - 6:10AM
Dow Jones News
Hong Kong's major commercial banks left their prime lending
rates unchanged Wednesday, after the U.S. Federal Reserve and Hong
Kong's de-facto central bank kept their benchmark interest rates
steady.
HSBC Holdings PLC (HBC) units Hongkong & Shanghai Banking
Corp. and Hang Seng Bank Ltd. (0011.HK) left their prime rates
unchanged at 5.00%, as did BOC (Hong Kong) Ltd. (2388.HK). Bank of
East Asia Ltd. (0023.HK) kept its prime lending rate at 5.25%.
The prime rates of all four banks haven't changed since November
2008, and their decisions Wednesday were widely expected,
signalling the low interest-rate environment won't change until at
least the third quarter, given the U.S. rate outlook, analysts
said.
Daniel Chan, an investment strategist at DBS Bank, said the
Federal Reserve's statement indicated there is no rush to raise the
policy rates, and the earliest rate hike is likely to happen late
in the third quarter or early in the fourth quarter.
"However, the key concern is capital flows. Any massive outflows
could push market interest rates higher," Chan said.
Chan added he doesn't expect any massive outflows in the next
few months, as the upcoming initial public offerings in the city
will likely attract inflows. Ample liquidity can also help curb a
rate hike, he said.
Aggregate balance, which measures commercial banks' clearing and
reserve account holdings with the central bank, stood at HK$199
billion Wednesday. Analysts said market interest rates are unlikely
to rise meaningfully unless the aggregate balance drops to HK$10
billion or less. The benchmark three-month Hong Kong interbank
offered rate was 0.10%, compared with 0.09% Tuesday.
Meanwhile, inflows are set to rise on sizable IPOs in the
pipeline, including Swire Pacific's US$3 billion spinoff of its
property unit, which is likely to be launched after the Easter
holidays in the first week of April.
Earlier Wednesday, the Hong Kong Monetary Authority said it kept
its base rate unchanged at 0.50%, in line with the U.S. Federal
Open Market Committee's decision overnight to keep its policy rate
steady. The Federal Reserve said in the statement that short-term
interest rates will remain "exceptionally low" for an "extended
period."
The territory's currency peg to the U.S. dollar bolts Hong
Kong's monetary policy to that of the U.S., so the HKMA generally
follows in lockstep any interest rate adjustments by the Federal
Reserve.
-By Chester Yung, Dow Jones Newswires; 852-2832 2331;
chester.yung@dowjones.com
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