According to Zhitong Finance APP, the Federal Reserve kept the federal funds rate unchanged at 3.75% to 4%, as the market expected. In Hong Kong, both HSBC and BOCHK announced they would keep the prime rate (P) unchanged at 5%, and other banks are expected to follow suit one after another. Wang Meifeng, Managing Director of CCB Mortgage, pointed out that pausing rate hikes in October after the September increase was in line with market expectations, and keeping rates unchanged at this meeting helps observe lagging inflation and economic data. She said that with the US citing an investment expansion momentum led by artificial intelligence enterprises, economic growth momentum has increased, and inflation still faces sticky rebound pressure, meaning the possibility of a December rate hike has been retained. The market expects the Fed may raise rates again by 0.25% at its final meeting in December this year to strengthen inflation control.
Wang Meifeng noted that the meeting statement mentioned the need to accumulate more information to determine appropriate policy, and stressed that decisions depend on the latest data going forward. If the US raises rates in December, it is not expected to hike continuously again in January, in order to gain more time to observe the lagged effects and impact of rate adjustments. First-quarter rate policy next year will depend on inflation and economic data developments, and it is expected that after the first quarter next year, US rates will broadly enter a sideways observation period first, with medium- to long-term rates falling after inflation stabilizes. She said that in October, Hong Kong dollar HIBOR gradually fell back to levels before the US rate hike in September, making Hong Kong dollar HIBOR more than 1% lower than US rates, reflecting that banks' funding cost pressure remains moderate for now. Coupled with ideal bank deposit growth this year, this has driven the Hong Kong dollar loan-to-deposit ratio to a 17-year low (the ratio fell to 69.3% at the end of August). At present, the banking system's deposit base is large and its resilience to rate adjustments is relatively high.
Wang Meifeng expects that US rates may rise once more by 0.25% in December to address inflation risks, bringing the cumulative increase including September to half a percentage point. At that time, whether Hong Kong banks follow with a prime rate hike will likely depend on factors such as the upward trend in Hong Kong dollar HIBOR and changes in banks' overall funding costs, with the odds of raising P or not at about fifty-fifty. Banks may raise the prime rate P due to higher funding costs, with an expected increase of between 0.125% and 0.25%. However, given banks' strong resilience to rate changes in the past, and with a large deposit base and still moderate funding cost increases, Hong Kong's prime rate may still have a chance to remain unchanged within the year.
Wang Meifeng believes that whether P is raised within the year may not be the key point. More noteworthy is that if rates move, the range is expected to be mild, and the market H mortgage rate is still expected to remain above 3% this year. On property prices, Wang Meifeng pointed out that in September the US restarted rate hikes to address inflation, while Hong Kong banks kept rates unchanged, and the market is gradually digesting expectations that there may still be mild rate hikes within the year. Local rates are expected to move little overall, and rate factors currently have limited impact on the property market. Although property prices entered a digestion period in the second half after strong growth in the first half, causing buyers to become more conservative in chasing prices and creating more of a standoff with owners that left secondary transactions stagnant, primary projects priced close to the market have kept sales ideal. Based on improving property market fundamentals, high rents sustaining strong demand from the public to switch from renting to buying and to buy for rental income, plus improving Hong Kong economic growth, the property market is supported in continuing to develop favorably.
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