HONG KONG: HSBC Holdings Plc and Standard Chartered Plc have raised their main lending rate in Hong Kong for the first time in four years, bumping up borrowing costs for property owners and businesses at a time when the economy is struggling with Covid restrictions and an exodus of talent.

Hong Kong’s biggest lender HSBC is boosting its prime rate by 12.5 basis points (bps) to 5.125% and warned of more increases to come. Rival Standard Chartered is lifting its rate by the same amount to 5.375%.

The moves came hours after the Hong Kong Monetary Authority or HKMA yesterday raised its base rate by 75 bps, keeping in step with the US Federal Reserve.

The Asian financial hub’s monetary policy moves in tandem with the United States to preserve the local dollar’s peg with the US currency.

Having enjoyed low, stable borrowing costs for more than a decade, Hong Kong’s economy is now bracing for higher rates as the US central bank has aggressively tightened to fight the worst inflation in 40 years.

At the same time, Hong Kong is in the midst of an economic slump, weighed down by some of the world’s most restrictive Covid policies and an exodus of residents amid political tensions.

“Anticipation around a potential prime rate increase in Hong Kong has been ripe and today’s announcement marks the beginning of an upward cycle,” Luanne Lim, HSBC’s Hong Kong chief executive, said in a statement.

“We have considered multiple factors, including the macro-economic environment, interbank trends as well as the impact on our economy and the community.”

Other lenders are expected to follow in raising prime rates, adding to pressure on the world’s least affordable property market where Goldman Sachs Group Inc has estimated prices may slump by about 20% over the next four years.

The banks are themselves also battling rising borrowing costs, with interbank rates hitting the highest level in 14 years. That’s bad news for home owners, who almost all have flexible mortgage loans linked to the Hong Kong interbank offered rate.

The loans have an upside protection based on a ceiling below the prime rate. Last month, HSBC and Standard Chartered Plc raised that cap by 25 bps for new home buyers, driving rates to the highest since 2008, according to Bloomberg Intelligence. Economists surveyed have predicted that the prime rates will climb this year.

 - Bloomberg