The US Federal Reserve gave its clearest signal yet that interest rate cuts are coming with its decision last week to keep them on hold. The Hong Kong Monetary Authority (HKMA) is keeping rates unchanged in tandem. Markets are rising in anticipation of rates falling in 2024 and 2025. Immediately after Fed chief Jerome Powell’s speech, everything from global stocks to corporate bonds surged higher. Investors are anticipating a soft landing for the US economy. Hong Kong’s capital markets are no exception. Its economy has been hit in recent years by a perfect storm, with the drastic US rate rises and the economic slowdown in China. The latest development should, hopefully, give the city a boost. HSBC and other leading lenders are keeping their prime rates steady.

The peaking of interest rates will offer relief for businesses and borrowers. At the weekend, in the first property sale since the Fed’s public remarks, the city’s biggest property developer, Sun Hung Kai Properties, sold 86 per cent of new flats. The robust sale means buyers have reserved great purchasing power amid the market downturn, which saw property prices drop by almost 20 per cent from their historical peak in 2021. The rebound also reflects strong demand among first-time buyers, rather than speculators. Still, the HKMA has been at pains to warn the public to seriously consider the financial conditions before committing to large purchases and investments.

Pessimism abounds in Hong Kong’s property market even as rate outlook improves

It was the fourth pause since the US Fed began its rate-rise cycle in March 2022. The HKMA has to follow the Fed because of the local currency peg to the US dollar. But despite the possibility of US interest rate cuts next year, Hong Kong’s prime rate may still move sideways for some time. It may remain high relative to those paid by borrowers over the past decade. HSBC, Hang Seng Bank and Bank of China (Hong Kong) currently keep borrowing rates for their most trustworthy customers at 5.875 per cent.