Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority
The FOMC increased the fed funds target rate by 25 basis points last night, the third time in the past seven months. This suggests that the process of US interest rate normalisation is gathering momentum.
The Fed has also announced its plan to reduce its balance sheet this year, including the size and pace of reduction. I believe once the Fed starts to reduce its balance sheet, market liquidity will be tightened gradually. We notice that the HKD exchange rate has recently eased to the level of around 7.80 due to widened interest rate differentials between HKD and USD. If the interest rate differentials widen further, there will be more arbitrage activities involving fund flows from HKD to USD.
Interest rate is one of the important factors affecting the property market. The current property market cycle is different from the cycle in 1997. In 1997, the downturn in property market coincided with a downward cycle of interest rates, with mortgage interest rates falling from over 10% to 3-4%. This time round a downward property market cycle may coincide with an upward cycle of mortgage interest rates. I would like to remind everybody that they should remain vigilant and manage risks prudently.