Advertisement

Exclusive | Hong Kong must raise interest rates but wild swing in property prices unlikely, finance chief says

  • Paul Chan says prime rate increase in Hong Kong is expected in coming months, but scale and pace need not follow US Fed’s move
  • Financial secretary also refuses to rule out using edge of Tai Lam Country Park for housing

Reading Time:3 minutes
Why you can trust SCMP
14
Financial Secretary Paul Chan says higher interest rates alone are unlikely to send property prices plunging, given other factors at play. Photo: Nora Tam

Hong Kong will have no choice but to raise interest rates, although the pace or scale need not follow US hikes and it is unlikely to trigger the kind of property market crisis seen in 1998, according to the city’s financial secretary.

Advertisement
While he called for calm in the face of higher mortgage payments for homeowners, Paul Chan Mo-po also offered hope to those aspiring to buy flats, promising not to rule out the option of taking over land on the fringes of a large country park for housing.

The previous administration had shot down calls to develop such sites, citing environmental concerns, but Chan said the option could help ease Hong Kong’s chronic shortage of affordable housing.

On the impending increase in borrowing costs, Chan told the Post in an exclusive interview: “The interest rate situation in Hong Kong is that under the currency board design, although our interest rate does not need to move up step by step like the US, unavoidably, it is on a rising trend.”

Hong Kong’s monetary policy has been run in lockstep with the United States Federal Reserve ever since the local currency was pegged to the dollar in 1983.

With the Fed expected to raise interest rates by 75 basis points on Thursday to curb inflation, banks in Hong Kong are set to increase the prime local lending rate for the first time in four years.

Advertisement

The city’s banks last increased the prime rate by 0.125 percentage points in September 2018, which came after nine US interest rate hikes between 2015 and that year.

Advertisement