The Hong Kong Monetary Authority (HKMA) yesterday tracked the US Federal Reserve in lifting interest rates again, but analysts said homeowners in the territory’s red-hot property market would be cushioned from the impact for now.
The US central bank’s 25 basis points rise in borrowing costs to 1.75 to 2 percent was followed hours later by the HKMA, which hiked its base rate a similar amount to 2.25 percent.
The increase comes as Hong Kong’s property market, one of the world’s most expensive, continues to power ahead despite government moves to cool it down.
Analysts also said that the territory’s strong economic growth — it grew at its fastest pace in seven years from January to March — would keep property prices buoyant.
“Major banks will raise the prime rate first — as soon as this week — and other smaller lenders will follow their lead to do the same,” said Ken Cheung (張建泰), a senior currency strategist at Mizuho Bank in Hong Kong. “Direct impacts on the housing market should be limited.”
The Hong Kong dollar has come under increasing pressure in the past few months as rising US rates are causing investors to sell the unit and buy the higher-yielding US greenback.
The HKMA has spent billions this year supporting the currency as it hits the bottom end of its permitted HK$7.75 to HK$7.85 band against the US dollar.
Under the linked exchange rate system, the authority is required to buy the local currency at HK$7.85 to US$1 if local banks request it.
Meanwhile, the People’s Bank of China did not follow suit — as it has with past Fed hikes — and lift the amount it charges to lend to banks, with data yesterday pointing to a broad slowdown in activity last month.
Industrial output, investment and retail sales all grew less than expected, suggesting further weakness ahead if Beijing perseveres with its crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing.
The data, which showed the slowest investment growth in over 22 years, “was all shockingly weak by Chinese standards,” Rabobank NV economists said, adding that the readings might explain the central bank’s decision to keep rates on hold.
“Get ready for headlines talking about Chinese deleveraging hitting the economy — except it isn’t even deleveraging yet. China is walking more of a tightrope than markets believe — and the data underline that issue clearly,” they said.
China’s fixed-asset investment growth cooled to 6.1 percent from January to last month from the same period a year earlier, the slowest pace since at least February 1996, while growth in infrastructure spending, a powerful economic driver last year, slowed to 9.4 percent in the first five months, from 12.4 percent in the January-to-April period.
Last month’s industrial output rose 6.8 percent from a year earlier, versus estimates for a small dip from April’s 7 percent, and retail sales grew 8.5 percent last month, the slowest since June 2003, while private sector investment, which accounts for about 60 percent of overall investment in China, also cooled.
Trade was one of the few bright spots in last month’s data, but analysts expect exports might also lose momentum in coming months amid rising trade tensions with the US.
Today, Washington is expected to release a list of about US$50 billion worth of Chinese goods that would be subject to a 25 percent tariff, but it is not clear when US President Donald Trump would activate them, if he chooses to do so.
Additional reporting by Reuters
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