“Should the US slow down the rate rise process, Hong Kong banks will also have less pressure to increase their cost of funding,” said Raymond Yeung, ANZ’s Greater China chief economist. “This will have a positive impact on the property market and overall economy of Hong Kong in the post-Covid-19 era.”
The Fed increased its target rate to between 4.5 per cent and 4.75 per cent in February, after raising rates seven times in 2022 by between 25 and 75 basis points. The Hong Kong Monetary Authority raised the city’s base rate by 25 basis points in February to a 15-year high of 5 per cent in lockstep with the US central bank, due to the Hong Kong currency’s peg with the US dollar.
“A pause in US interest rate rises will also weaken the US dollar against other currencies, helping to strengthen the yuan and the Hong Kong dollar,” ANZ’s Yeung said.
Bank failures in the United States so far are results of both a “cryptocurrency winter” – start-ups finding it hard to get investors on board – and fast interest rate rises, said Tommy Ong, managing director of TO & Associates Consultancy. The Fed will be forced to halt rate increases this month to avoid blame from being laid at its doorstep for accelerating the collapse at SVB, he added.
“Besides, US inflation pressure seems to be less severe than what the Fed narrated,” Ong said. “The Fed [might] think that the risk of more bank failures due to assets and liabilities mismatches is currently a bigger [concern] than inflation getting out of control.”
The Fed would not increase interest rates next week, as it will try to avoid turmoil in the banking industry, said Louis Tse Ming-kwong, the managing director at Wealthy Securities. “This is because the next US presidential elections are just round the corner,” he added.
The few analysts that still expect an interest-rate increase next week said it will be limited to a 25-basis-point hike.
19:23
New growth engines proposed in Hong Kong budget but geopolitics could derail plan, analysts say
“The Fed is likely to increase interest rates by 25 basis points only, instead of what the market expected – 50 basis points – last week,” said Ryan Lam Chun-wang, head of research at Shanghai Commercial Bank. “The Fed does not want to look aloof and go against the Treasury’s rescue operation during the SVB saga, even though it is still its duty to beat back inflation. Still, it will slow down the interest rate rise pace to calm the market.”
HSBC, one of Hong Kong’s three currency-issuing banks, swooped in on Monday as a white knight to rescue SVB’s UK subsidiary, offering support in a collapse that has roiled both the financial and technology worlds.
At least 13 Hong Kong-listed technology and biotechnology firms have over the past two days said they have deposits totalling US$217.23 million at SVB, with amounts ranging from US$400,000 to US$175.5 million.
05:31
Hong Kong Monetary Authority chief Eddie Yue on future of city’s economy amid higher interest rates
“Another 25-basis-point hike is still expected in [the FOMC’s] March meeting, while a further rate hike in the first half cannot be ruled out,” said Ricky Choi, chief economist at Bank of East Asia.
“However, continuous rapid increases in interest rates could always result in unknown risks in the financial system or broader economy. If the financial stability and broader economy are affected by the current SVB saga, the Fed could be more cautious in considering its rate hike moves ahead.”
Jeffrey Gundlach, the founder of DoubleLine Capital, said on CNBC that he expects next week’s Fed meeting to mark the last rate hike for the year, adding that anything higher than a 25 basis-point rise could damage the central bank’s credibility.
“I just think to save, kind of, the programme and their credibility, they’ll probably raise rates 25 basis points,” Gundlach said. “I would think that that would be the last increase.”
