HKMA warns of deposit and lending rate increase

The supply and demand of the Hong Kong dollar in the local banking system is the key factor behind the change in deposit and lending rates.

The Authority said lenders may adjust commercial deposit and lending rates with or without a change in the US rates

Monetary Authority Chief Executive Norman Chan warns upward pressure on banks' lending and deposit rates will likely continue due to strong loan demand.

In his online column published on Tuesday, Mr Chan said banks may adjust commercial deposit and lending rates with or without a change in the US rates.

He said this is because the level of US dollar interest rates, and thus the Hong Kong dollar interbank rates, is only one factor affecting banks' consideration in setting their Hong Kong dollar deposit and lending rates.

A crucial factor behind banks' commercial decision to change Hong Kong dollar deposit and lending rates is the supply and demand of the Hong Kong dollar in the local banking system, according to an HKMA report.

With the Hong Kong dollar loan-to-deposit ratio of all authorised institutions increasing rapidly from 71% in early 2010 to 81.7% by the end of March this year, many banks have raised their lending rates, in particular for new mortgage loans. 

He said it is therefore important for the public to understand how different types of interest rate might be affected in different market circumstances and manage their interest rate risks accordingly.