Hong Kong’s financial officials warn borrowers to brace for a delay in the cost of funding

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The pace of cuts in the prime rate used by commercial banks ‘may be slower’ than those in the United States, warned Financial Secretary Paul Chan

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Financial Secretary Paul Chan Mo-po at the Belt and Road Summit at HKCEC in Wan Chai on September 11, 2024. Photo: Eugene Lee

Enoch Yiu

Published: 10:11am, 19 Sep 2024Updated: 10:31am, 19 Sep 2024

Hong Kong’s financial officials said the public should brace for a time lag between their funding costs and the city’s base interest rate, as they cautioned against profligate borrowing amid a lacklustre economic growth.

The warnings followed the half-point cut in base rate by the Hong Kong Monetary Authority (HKMA), in lockstep with the larger-than-expected move by the US Federal Reserve overnight.

Hong Kong’s base rate fell to 5.25 per cent, the first decline in four years. All eyes are now on the city’s commercial banks to see if they will cut their prime rates and pass the savings on to their best customers.

The pace of cuts in the prime rate used by the city’s commercial banks “may be slower” than those in the US because the adjustments “are based on fund flows and other factors,” said Financial Secretary Paul Chan Mo-po.

Howard Lee, acting chief executive officer of the Hong Kong Monetary Authority (HKMA), during a press briefing on September 19, 2024. Photo: Enoch Yiu

Multiple factors affect the pace of cuts: US inflation, changes in market conditions, labour markets and how America’s economy reacts to the rate cuts, said HKMA’s acting chief executive Howard Lee.