Hang Seng Bank mortgage rates for some customers are up 25 basis points, but several other banks are holding off on an interest hike until they see what the US Fed does. Bloomberg

Newer Hang Seng Bank customers may want to double check their mortgage rates.

On the eve of a US Federal Reserve (Fed) decision regarding interest rates, the Hong Kong lender opted to raise rates for some customers.

Speaking to reporters yesterday, Hang Seng Bank Chief Executive Raymond Or said that some local banks have already raised mortgage rates, believing they are becoming increasingly pressured.

"Even though the HIBOR (Hong Kong Interbank Offered Rate) has eased a little, there is still room for increase," he said, adding that the bank raised mortgage rates 25 basis points for a handful of customers. "The changed rates apply to some clients that do not have a long, established relationship with us," he said.

Rates remained unchanged for high-net-worth and long-time customers.

The mortgage rate for Hang Seng is its prime rate of 5.25 percent minus 2.75 percent. That means that after the change, mortgage rates can go up to prime minus 2.50 percent.

Hang Seng followed DBS and China Construction Bank (Asia) in raising the rates. Other major Hong Kong banks have remained hesitant to do so, saying they'd rather wait until after Wednesday's meeting (Thursday in Hong Kong) to make an interest-rate decision.

"Given the current economy and inflation, I expect the Fed will choose not to change interest rates," Or said.

George Leung, adviser for strategy and economics at HSBC in Asia-Pacific, echoed those sentiments, saying he believes the Fed will keep the rate unchanged until next year.

He said that the US economy is in a dilemma - a rate hike will lead to stagflation in the US, but the mounting inflation needs to be curbed by a rate hike.

The market is quite concerned about the post-meeting statement revealing the Fed's attitude toward the inflation and the economic situation, Leung said.

He admitted that a high interbank rate will erode the bank's mortgage-business profits.

HSBC will monitor the HIBOR after the US interest rates decision, and Leung expects the rate to drop, easing some pressure on local banks.

Joe Lo, a senior economist at Citigroup, said in a research report that the bank expects the Fed to start raising rates in early 2009.

The Fed funds rate is likely to remain at 2 percent later this year and rise to 3.25 percent by the end of 2009, Lo said in the report.

He also expects the three-month HIBOR to rise to 2.75 percent by the end of this year.

The bank maintains its forecast that Hong Kong banks will raise mortgage rates by 25 to 50 basis points later this year, even if the Fed leaves the policy rates unchanged.

(HK Edition 06/25/2008 page2)