The Fed’s decision to raise interest rates worries Hong Kong’s economy (China)

The fact that Hong Kong has pegged the exchange rate to the US dollar since 1983 has helped this Special Administrative Region overcome economic storms such as the financial crisis Asia in 1997 and cemented Hong Kong’s status as a major global financial center. However, this policy also means that Hong Kong has no choice but to follow the Fed’s biggest interest rate hike in 22 years.

The outbreak of COVID-19 in China has hurt economic growth and the last thing Hong Kong needs now is an interest rate hike, said Lloyd Chan, an economist at Oxford Economics.

Hong Kong has revised down its economic growth forecast for 2022 to 1-2%, after a 4% decline in the first quarter of 2022. Hong Kong’s Finance Director said last week that the Special Administrative Region is facing a reversal of the low-interest rate environment that has favored Hong Kong for more than a decade.

As the economy has yet to fully recover from the COVID-19 pandemic, Hong Kong’s leaders must pay attention to the impact of interest rate hikes on residents and small and medium-sized businesses, according to the official. .

Hong Kong banks have so far kept lending rates steady, analysts say, but expect a tightening in the next three to six months. Economist Gary Ng of the Bank for Foreign Trade of France (Natixis) in Hong Kong, thinks interest rates could rise faster than in the past, with an acceleration of pace from the Fed.

Homebuyers with Hong Kong Interbank Interest Rate (HIBOR) mortgages will be among the first to feel the heat, said Heron Lim, an economist at rating agency Moody’s Analytics. interest rate increase. An increase in interest rates could slow the recovery of Hong Kong’s economy, as the higher burden on homebuyers will affect their ability to consume.

Economist Samuel Tse of Singapore’s DBS Bank noted that SMEs are also likely to face a “really tough time” if a rise in interest rates coincides with a resurgence in the banking sector. wave of COVID-19 infection.

Last week, the Hong Kong Monetary Authority (HKMA) spent HK$8.53 billion ($1.08 billion) in an effort to support the local currency, marking its first intervention since 2019. DBS’s Tse said that although Hong Kong’s foreign exchange reserves have fallen from $500 billion to around $460 billion, this is still a relatively high level enough to protect the HKD.

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