Three of Hong Kong's biggest banks raised their lending rates on Thursday for the first time in 12 years, ending an age of cheap cash that could hit the city's famously red-hot property market. The announcement sparked a government warning about the effects on borrowers in the city, while the de facto central bank warned of "uncertainties"."
The moves by HSBC, Standard Chartered and Hang Seng Bank came after the Hong Kong Monetary Authority lifted its borrowing costs following an increase by the US Federal Reserve.
The HKMA is required to lift rates in line with the Fed owing to the dollar peg.
HSBC and Hang Seng each boosted their lending rate 12.5 basis points to 5.125 percent, while Standard Chartered lifted its rate from 5.25 percent to 5.375 percent.
"Today's change in rates marks the start of the normalisation cycle for local interest rates and we believe Hong Kong is well prepared for the change," said Diana Cesar, HSBC's chief executive in Hong Kong.
More of the city's commercial banks are expected to hike their prime rates, meaning higher mortgage payments for loans that are linked to it.
"The super-low interest rate environment in Hong Kong probably will finish. Going forward, interest rates will go up," said Hong Kong finance secretary Paul Chan.
"Higher interest rates will add to the burden of homeowners with mortgages," Chan added, urging investors to "exercise caution in managing their investment and risks".
Prior to the rates hike Chan had written on his blog that the property market had shown signs of cooling in recent weeks. Shares in Hong Kong property firms turned south Thursday, with Sun Hung Kai Properties, Sino Land and Country Garden all taking a hit.
The Federal Reserve raised the benchmark interest rate on Wednesday for the third time this year in a widely anticipated decision, citing the strong US economy and jobs market.
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