Hong Kong Bankers Association: Uncertainty remains in the trend of US interest rate cuts, narrowing the gap between Hong Kong and US interest rates in the future is beneficial for the development of the Hong Kong economy.

The Fed cut interest rates by 0.25% as expected by the market, and three issuing banks subsequently lowered their prime rates by 0.125%. Willy Tam, acting chairman of the Hong Kong Association of Banks, stated that Fed Chairman Powell mentioned the need to observe data, and market expectations for another rate cut in December have cooled down, leaving uncertainties about future interest rate trends. Additionally, the meeting between the leaders of the US and China today has released many positive signals, with a potential signing of an economic and trade agreement later, eliminating a major uncertainty in the market. The easing of US-China trade tensions is believed to help ease inflation pressure and support a looser monetary policy. Under the linked exchange rate system, Hong Kong interest rates follow those of the US and are also affected by the supply and demand of funds in Hong Kong. However, the excess balances in the banking system have recently fallen to around HK$54 billion, a tense level. It is estimated that the Hong Kong Interbank Offered Rate (HIBOR) will only see marginal fluctuations. It is projected that the 1-month HIBOR will remain within the range of 3% to 3.5% this year. It is believed that the gap between Hong Kong and US interest rates will gradually narrow, which would be beneficial for the economic development of Hong Kong. The stock market in Hong Kong has flourished this year, with average daily turnover exceeding HK$250 billion. The investment atmosphere has significantly improved, and under various favorable policies, it is expected that Hong Kong's economy will grow by 2% to 3% this year, in line with government forecasts. Willy Tam stated that adjustments in prime rates are individual commercial decisions made by banks, depending on funding costs, composition of assets and liabilities, and business strategies. During the previous rate hike cycle in 2018, the US raised rates by a cumulative 5.25%, while Hong Kong only followed with a 0.875% increase. If the US continues to cut rates, it is believed that prime rates may not necessarily follow suit. It is estimated that HIBOR will decline along with US rates, which will help lower funding costs for corporate clients.