Hong Kong banks trim prime rates firstly in five years after the US rate cut

Hong Kong lenders have lowered their prime rates for the first time since 2019 to boost the local economy just after the US Federal Reserve’s interest rate cut.

HSBC cut the prime lending rate by a quarter of a point to 5.625% effective Friday, and the deposit rate over HK$5,000 will be decreased by the same margin to 0.625% per year, according to the bank.

Bank of China (Hong Kong), also reduced the loan rate for its best customers by the same amount to 5.625%, starting from Sep. 23, the bank said.

The action echoed the US Federal Reserve’s decision to cut the base rate by 50 basis points on Thursday. Hong Kong Monetary Authority, the city’s de facto central bank, followed the decrease to 5.25% to maintain the exchange rate with the US dollar.

“By now various indicators show that inflationary pressure in the US has eased,” said Howard Lee, the acting chief executive at HKMA. “With signs of labour market cooling down, the Fed’s 50-basis-point rate cut is largely in line with market expectations.”

During the Fed’s rate-hike cycle since March 2022 in response to inflation, interest rates were raised 11 times by a 5.25 percentage point, according to the HKMA.

Chong Tai-leung, the executive director of Lau Chor Tak Institute of Global Economics and Finance, said the Interest rate cut will release money from fixed deposits, and most of this money will go back to the stock market, which simulates stocks upwards first. 

“If all the money from fixed deposits comes back, the stocks could be pushed to over 30,000; even half of it comes back, our stocks could also soar to about 24,000.”

The Japanese stock market tops the increase of 2.1% among major Asian markets on Thursday. The Hang Seng Index reached a two-month high of 18013.16 at the close, while the Hang Seng Tech Index surged by 3.25% from the previous close.

Although the interest rate drop eased the yuan’s pressure, some investors still suspect whether the market could recover from the lagging.

Lo Chi-wai, 62, a local taxi driver who has invested more than HK$400,000 in the stock market for the past 20 years said he won’t keep investing in the pool anymore.

“To be honest, I’m not quite confident in the stock market for the long run, I may earn a few pennies these days to buy lower and sell higher, but it's just an effort to let me lose less.”