By Karen Cho and Hui Ching-ho (China Daily HK Edition)
Updated: 2007-11-02 16:12

Hong Kong lenders slashed prime lending interest rates for the second time in two months after the US Federal Reserve announced on Wednesday that it will trim interest rates by 25 basis points to boost the struggling US property market.

Hong Kong and Shanghai Banking Corp, Hang Seng Bank, Bank of China (Hong Kong), Bank of East Asia and Standard Chartered Bank are among the major local banks that decided yesterday to follow the Fed's lead to roll back interest rates by 25 basis points.

"The Hong Kong Interbank Offered Rate had eased somewhat so there is room for banks to cut interest rates," said Hang Seng chief executive Raymond Or Ching-fai yesterday.

The recent spate of initial public offerings and the weak US dollar had gripped Hong Kong's capital markets, driving the inter-bank offered rate up. The Hong Kong Monetary Authority had to inject capital into the market four times in the past two weeks in an attempt to ease the HIBOR and keep the peg rate to the US dollar.

Hong Kong and Shanghai Bank Corp executive director Peter Wong Tung-shun said that the US decision to cut rates had relieved some pressure on the HIBOR.

"The one to three month benchmark HIBOR had receded 60 basis points this (Thursday) morning. That is the reason why we have decided to trim the prime rate," said Wong.

However, whether more lending rate cuts will be forthcoming, Wong said, will depend on capital market conditions after cash frozen up by the fervent IPO activities are released.

This is the second time Hong Kong lenders cut lending rates this year. Last month, at the height of the US subprime crisis, the Fed announced a 50 basis point cut to interest rates. The move prompted local banks to trim lending rates by 25 basis points.

Cheung Kong Holdings Senior Sales Manager William Kwok predicted that the rate cut would encourage property sellers to put their flats on hold for a possible price rise in future. "Transactions are expected to stay flat over the coming one to two weeks as a result of lengthened bargaining between buyers and sellers."

He added that the market has digested the rate reduction. "We expect a year-end correction of the property market because some prospective buyers will take a wait-and-see attitude in anticipation of a pay raise."

Midland Property Group Executive Director Vincent Chan said lower mortgage rates would invigorate the property market. "The property sector will remain bullish in the long run, despite an unlikely transaction boom in the immediate future."

Centaline Finance Director & General Manager Hendrick Leung said that some small lenders might have to offer new mortgage applicants some sweeteners such as cash rebate because of the erosion of their interest revenues.

Hon Kwok Project Management Director and General Manager David Ma said the extent of the rate cuts were widely expected. "It will just have a psychological rather than a practical impact on the housing market."