Meridian: Risk of a Fed rate hike in December remains; limited adjustment to Hong Kong's prime rate

The Federal Reserve's policy meeting has concluded, announcing that the benchmark interest rate will remain in the 3.75% to 4% range. In Hong Kong, HSBC today announced that the Prime Rate (P) will remain unchanged, staying at the current 5% level. Cao Deming, Chief Vice President of mReferral Mortgage Brokerage Services, said that the defensive rate hike made by the Federal Reserve last month still needs to be observed for its effect on controlling inflation, hence the decision to hold steady this time. However, the U.S. September Consumer Price Index (CPI) rose 3.7% year-on-year, with core CPI up 2.6% year-on-year, both higher than market expectations. Coupled with ongoing uncertainties in the geopolitical situation, if inflation data remains elevated in the future, it cannot be ruled out that the Federal Reserve will raise rates again in December to suppress inflation. Regarding Hong Kong interest rates, Cao Deming pointed out that the current aggregate balance of the Hong Kong banking system remains at approximately HK$54 billion, and with recent weak demand for Hong Kong dollar loans, the one-month Hong Kong Interbank Offered Rate (HIBOR) has remained below 3% throughout October. As funding costs have not yet come under significant pressure, Hong Kong banks currently do not need to raise the Prime Rate (P). Even if the Federal Reserve raises rates again in December in response to inflation, it is expected that Hong Kong banks may only make limited adjustments to P. Cao Deming continued that today's one-month HIBOR stands at 2.71%, and is expected to hover broadly in the 2% to 3% range in the near term. Based on the current typical new H-mortgage plan of H+1.3%, H-mortgage borrowers will still need to make payments at the capped rate of 3.25% in the near term. However, the 2.73% fixed-rate mortgage plan launched by major banks earlier this year has been well received, with its adoption rate once climbing to over 35%, a new high in more than 8 years, and has pulled down the overall level of new mortgage rates. According to the latest data from mReferral Mortgage Brokerage Services, the mReferral Mortgage Brokerage Services Rate Index (MMI), which reflects the effective rate of general new mortgages, stood at 3.18% in September, having remained below 3.25% for eight consecutive months. Regarding current mortgage choices, Cao Deming said that although two major banks have recently adjusted their fixed-rate mortgage rates slightly to 2.93%, this is still 32 basis points lower than the H-mortgage capped rate of 3.25%; in addition, another major bank has launched a mortgage plan with a fixed P rate for the first 2 or 3 years followed by H, with an effective mortgage rate as low as 2.68% (P-2.32%). With future interest rates still subject to change and HIBOR unlikely to fall significantly in the near term, these two types of plans offer significant interest savings and are expected to attract more buyers, potentially driving the MMI further down within the year.