HSBC & Bank of China's Rate Cuts: A Double-Edged Sword for Hong Kong

Hong Kong's banking landscape has witnessed a significant shift with HSBC and Bank of China (Hong Kong) announcing cuts to their lending rates. While this move is expected to boost consumer and business borrowing, the Hong Kong Monetary Authority (HKMA) has warned of potential volatility ahead. This article explores the implications of these rate cuts on Hong Kong's economy and the challenges faced by commercial banks in navigating the uncertain interest rate environment.

HSBC and Bank of China's rate cuts, effective from 20 September 2024, saw their Hong Kong dollar best lending rates reduced by 25 basis points to 5.625% and 5.375%, respectively. These cuts follow the US Federal Reserve's decision to lower its target range for the federal funds rate by 25 basis points to 4.25-4.5%. The HKMA, in line with the Fed's move, reduced its Base Rate to 4.75%.

The rate cuts by HSBC and Bank of China are expected to lower funding costs for local businesses and mortgage borrowers, potentially stimulating economic activity. However, the HKMA's warning of potential volatility ahead could temper enthusiasm for increased borrowing. The uncertainty surrounding future US interest rate cuts and the possibility of higher interest rates in the future may lead businesses and consumers to adopt a cautious approach to borrowing and investing.



Commercial banks in Hong Kong face a delicate balancing act in reducing funding costs for local businesses and mortgage borrowers while managing their own risk exposure. The uncertainty of future US interest rate cuts adds complexity to their decision-making process. Banks must consider the influence of interbank rates, their own funding cost structures, and market conditions when deciding on deposit and lending rate adjustments.

Seasonal effects and capital market activities also play a role in determining the pace and extent of future interest rate cuts by commercial banks in Hong Kong. The Hong Kong dollar exchange rate, under the Linked Exchange Rate System, generally tracks US dollar counterparts, while shorter-tenor interbank rates are influenced by the supply and demand of Hong Kong dollar funding in the local market.

In conclusion, HSBC and Bank of China's rate cuts present a double-edged sword for Hong Kong's economy. While they may boost consumer and business borrowing, the HKMA's warning of potential volatility ahead could temper enthusiasm. Commercial banks must navigate the uncertainty of future US interest rate cuts and balance the need to reduce funding costs with managing their own risk exposure. The interplay between interbank rates, seasonal effects, and capital market activities further complicates their decision-making process. As Hong Kong continues to grapple with the challenges of a volatile interest rate environment, informed investment decisions will be crucial for both businesses and consumers.