Steeper mortgages may loom as HIBOR extends climb to 1.32%

This comes as a result of the purchases made by HKMA to support the struggling dollar.

Bloomberg reports that the three-month interbank rate, the Hong Kong Interbank Offered Rate, has extended its climb for the fourth day to hit 1.32% the highest since December as the de-facto central bank ramps up its purchases of the local dollar.

The HKD plunged to the weak end of the trading band at $7.85 which marks a thirteen year low, prompting the Hong Kong Monetary Authority to intervene. The HKMA has bought a total of $33.7b in local dollar since last week in its bid to defend the HKD’s peg to the US dollar. 

Also read: HKMA capital injection fails to buoy local currency

As mortgage rates are either linked to Hibor or the prime lending rates up to a certain extent, prospective homeowners may have to shoulder higher costs in the near future.

The city’s largest banks offer mortgages for new customers at Hibor plus around 1.4 percentage points. This means that as Hibor climbs, so does the cost of mortgage borrowing.

“Around mid-2018, dividend payment flows, potential large initial public offerings, quarter-end effects and a possible June rate hike by the Federal Reserve may add more upward pressure to the Hibor,” said Carie Li, an economist at OCBC Wing Hang Bank in Hong Kong. She expects three-month Hibor to rise to 1.65 percent by the end of this year, slowing the buildup in short positions and helping the currency strengthen to HK$7.83.

Also read: HKMA may sell Exchange Fund Bills to halt dollar decline 

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