After the US Federal Reserve and Hong Kong Monetary Authority (HKMA) cut their key policy rate by a full percentage point in 2024, at least two more rates are possible next year, according to analysts.
Hong Kong banks, meanwhile, may further cut their lending rate to a historical low of 5 per cent, which would benefit the economy and property sector, they added.
The market expects the Fed to hit pause on rate cuts in the first half of 2025, followed by two or three reductions in the second half for a combined 50 to 75 basis points, according to 10 analysts polled by the Post.
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“The US next year will continue to cut rates, but the pace and frequency of rate cuts may be less than initially expected,” Eddie Yue Wai-man, the CEO of HKMA, said on December 19.
The HKMA cut its base rate to 4.75 per cent, the lowest since December 2022. Photo: Jonathan Wong alt=The HKMA cut its base rate to 4.75 per cent, the lowest since December 2022. Photo: Jonathan Wong>
Hong Kong’s de facto central bank cut its base rate to 4.75 per cent, the lowest since December 2022, after the Fed cut its rate by the same amount to a range of 4.25 to 4.50 per cent. Both institutions reduced their key rate by a full percentage point in 2024, while local commercial banks cut their prime rate, the lending rate offered to their best customers, by 62.5 basis points.
However, the Fed’s rate outlook was hawkish, suggesting only two cuts in 2025.
“The [Fed’s rate cut] decision will depend on the inflation and unemployment rates, as well as the overall economic environment,” said Eric Tso Tak-ming, chief vice-president of mortgage broker mReferral.
“If the inflation continues to be controlled, the Fed may cut interest rates at least three times, bringing the rate down to 3.75 per cent next year. Hong Kong lenders may follow and cut their prime rate.”
Bank of China (Hong Kong), HSBC and its subsidiary Hang Seng Bank have set their prime rate at 5.25 per cent, while it currently stands at 5.5 per cent at Bank of East Asia, Standard Chartered and ICBC Asia. The lowest prime rate in Hong Kong has fallen to is 5 per cent. It stood at this level from 2009 to 2018 and again from 2019 to November 2022.
“A continuing trend of interest rate cuts will lower the cost of funding and reduce mortgage repayments, which will benefit Hong Kong’s property market and overall economy,” said Raymond Yeung, chief economist for Greater China at ANZ Banking Group.
