Central Plains Mortgage: There is still a great opportunity for interest rate cuts in the U.S. in the second half of the year, which will support the Hong Kong property market

According to the Zhitong Finance APP, Wang Meifeng, Managing Director of Central Plains Mortgage, stated that the Federal Reserve's decision to maintain the federal funds rate at 4.25% to 4.5% aligns with market expectations, marking four consecutive meetings of no change. The benchmark HSBC has announced that its prime rate remains at 5.25%, consistent with market expectations, and it is believed that Hong Kong banks will follow suit in keeping the prime rate unchanged. Since May, the significant drop in interest rates has alleviated the burden of mortgage payments, coupled with the "buying to rent" demand driven by the "buying is cheaper than renting" trend, and the simultaneous decline of mortgage and fixed deposit rates has increased the attractiveness of buying properties for rental income. Recently, both the primary and secondary property markets have seen significant increases in transactions, indicating a warming trend in the Hong Kong property market. There remains a strong possibility of U.S. interest rate cuts in the second half of the year, which will support the property market.

Wang Meifeng anticipates that U.S. interest rates will continue to decline within the year, with the possibility of another rate cut in the second half, potentially totaling two cuts of 0.5% for the year, bringing rates below 4%, and gradually down to the low 3% level. Given that Hong Kong interbank rates have already started to decline, easing banks' funding costs, it is expected that when the U.S. lowers rates, Hong Kong banks will follow by reducing the prime rate. After a cumulative reduction of 0.625% last year, there remains a reduction potential of 0.25% this year. As the U.S. continues to cut rates, the Hong Kong prime rate is expected to further decrease by 0.25%, completing the rate reduction cycle. At that time, the capped interest rate based on the prime rate will drop to 3.25%, which will lower the income level requirements for mortgage applicants, thereby supporting the Hong Kong property market.

Recently, the Hong Kong dollar has weakened, approaching the 7.85 level, and it is not ruled out that it may touch the weak side convertibility guarantee in the short term, prompting the Monetary Authority to intervene passively to reduce the banking system's balance. Given that Hong Kong interest rates are significantly lower than U.S. rates, it is believed that this has triggered an increase in arbitrage activities, along with seasonal factors related to the half-year closing. It is believed that Hong Kong interbank rates may see some recovery; however, Wang Meifeng expects that the interest rate differential between Hong Kong and the U.S. will still widen compared to the past, and with the high likelihood of another U.S. rate cut in the second half, it is expected that Hong Kong interest rates will remain below the levels seen before May this year, with Hong Kong mortgage rates primarily fluctuating around the current levels of 1.84% and within the 2% to 3% range