Increased Mortgage Repayment Burden
Trade Deficit Hits Highest Level in a Year
Hong Kong's benchmark interest rate has soared to its highest level in 16 years. The high interest rate adversity has compounded the worsening economic conditions caused by the global economic slowdown and weak domestic demand in China.
On the 27th, the Hong Kong Monetary Authority (HKMA), the equivalent of Hong Kong's central bank, raised the benchmark interest rate from 5.5% to 5.75%. Hong Kong implemented the rate hike immediately after the U.S. Federal Reserve (Fed) raised its rate by 0.25 percentage points. As a result, Hong Kong's benchmark interest rate reached its highest level in 16 years since 2007.
Since 1983, Hong Kong has adopted a fixed exchange rate system (dollar peg system) that keeps the currency value moving within the range of 7.75 to 7.85 Hong Kong dollars per U.S. dollar. Due to the Fed's consecutive rate hikes, Hong Kong has also continuously raised its rates over the past 17 months.
The HKMA warned about the high interest rate environment and said this trend could continue for the time being. An HKMA spokesperson urged, "When purchasing real estate, taking out mortgage loans, or borrowing for other purposes, one should keep in mind interest rate fluctuations and related risks."
The actual rate increase is expected to affect the outstanding mortgage loans in Hong Kong, which amount to 1.8 trillion Hong Kong dollars. The Hong Kong South China Morning Post (SCMP) reported, "The rate hike will be a negative factor for the regional economy that has just emerged from a recession," noting that Hong Kong's economy grew by only 2.7% in the first quarter.
The trade deficit is also growing. According to the Hong Kong Census and Statistics Department, Hong Kong's total merchandise exports last month amounted to 337.4 billion Hong Kong dollars (approximately 55.12 trillion Korean won), down 11.4% year-on-year. During the same period, merchandise imports were 393.9 billion Hong Kong dollars, down 12.3%. Although the decline in exports and imports improved compared to the previous month (May), which saw decreases of 15.6% and 16.7% respectively, the trade deficit reached 56.6 billion Hong Kong dollars, the largest in a year.
Hong Kong Dah Sing Bank forecasted that Hong Kong's export performance would continue to face pressure due to the global economic slowdown. It particularly diagnosed that the mainland's economic momentum is weak and manufacturing activity is contracting. However, it observed that the mainland's recent various economic support measures could help stabilize demand.
Hong Kong has struggled to regain its competitiveness as an international city even after China's transition to a "with-COVID" policy. In the Global Power City Index (GPCI) by Japan's Mori Memorial Foundation, Hong Kong fell from 13th place in 2021 to 23rd last year. It was ranked 7th in 2016. In the Global Financial Centres Index (GFCI) released in March, Hong Kong dropped to 4th place, losing 3rd place to Singapore. Hong Kong's GDP growth rate last year was -3.5%.
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