Meridian: If the US starts cutting interest rates in Hong Kong during the year or falls to the level before the interest rate hike cycle

The Zhitong Finance App learned that the Federal Reserve's interest rate meeting remained on hold, and HSBC announced on the same day that the best preferential interest rate (P) would remain unchanged at the current level of 5.25%. Cao Deming, chief vice president of Meridian Mortgage Referral, said that if inflation continues to fall or the unemployment rate rises, and the US may start cutting interest rates after mid-year, the Bank of Hong Kong will adjust interest rates according to its own business strategy and follow the reduction in the best prime interest rate (P). There is also a chance that the best interest rate will fall to the level before the end of the year to the pre-interest rate hike cycle.

Cao Deming said that the Bank of Hong Kong lowered its best interest rate three times last year, both more and faster than market expectations. In addition, the bank's interest rate cut last year was already higher than expected, and the bank did not adjust the best interest rate due to the US interest rate trend and current capital cost considerations.

At the end of the Fed's interest rate meeting, it was announced that the benchmark interest rate would remain in the 4.25% to 4.5% range. Federal Reserve Chairman Powell said that recent data showed a steady expansion of economic activity and a stable job market, but there is still uncertainty about the economic outlook and tariffs. As the risk of rising unemployment and inflation increases, the Federal Reserve will continue to reduce its holdings of treasury bonds and mortgage-backed securities, and strive to restore inflation to the target level of 2%.

Cao Deming pointed out that the impact of tariffs on inflation remains to be seen, leaving the Federal Reserve on hold. However, the latest US consumer price index (CPI) for March was 2.4%, and the core CPI was 2.8%. The two figures continued to fall below market expectations. It is believed that the Federal Reserve will examine trends in inflation and employment data, such as continuing to decline in inflation or rising unemployment, and cut interest rates for the first time in the year as soon as mid-year or later.

Cao Deming said that although the US has not cut interest rates, the Bank of Hong Kong has not adjusted the best interest rate. However, due to the recent boom in the Hong Kong stock market and large-scale IPO activities, market demand for Hong Kong dollars has increased significantly. The HKMA has entered the market four times since last Friday, and the aggregate balance of the Hong Kong banking system has risen to HK$174 billion. With the influx of hot money, one-month HIBOR also immediately declined significantly. Today, HIBOR reported 2.09%, a new low of more than two and a half years after September 14, 2022. Even if the Bank of Hong Kong did not adjust the best preferential interest rate, HIBOR has now fallen to 2%. Interest expenses for property owners can be reduced immediately, which has a positive effect on the property market.