Thursday, March 20, 2008

Zero Interest Rates

The Standard & Bloomberg: Hong Kong bank customers will be earning virtually no money on their deposits as lenders slashed their rates in wake of the US Federal Reserve's move to cut its key interest rate, bringing their saving rates practically to zero percent.

Two of the city's major lenders, Hongkong and Shanghai Banking Corp, and Hang Seng Bank, will offer an interest rate of 0.01% for deposits of more than HK$5,000. This means that, starting from today, their customers will receive HK$1 interest a year on a deposit of HK$10,000 or HK$100 on HK$1 million.

And, at HSBC, depositors whose monthly balances are less than HK$5,000 will not only receive no interest at all, they will be charged a monthly fee of HK$50 to boot. Senior citizens over 65 or recipients of the Comprehensive Social Security Assistance Scheme will be exempted from the charge. Standard Chartered Bank (Hong Kong) and others offer slightly better deposit rates. Standard Chartered will pay 0.05 percent interest for deposits under HK$500,000.

Although depositors will feel squeezed by the lower savings rates, homeowners will rejoice, as banks have lowered their prime lending rates by half a percentage point. Some 25 percent of Hong Kong's households have mortgages.

Hang Seng, HSBC and Bank of China (Hong Kong) lowered their best lending rate by to 5.25 percent from 5.75 percent, while Standard Chartered, DBS Bank (Hong Kong), and others cut their prime rates by 50 basis points to between 5.5 percent and 5.75 percent.

The market is expecting the Fed to lower the benchmark interest rate by another 50 basis points at its next meeting on April 29-30.

With benchmark lending rates to the lowest in three years, this is adding to inflationary pressures that are straining the city's 24-year-old fixed exchange rate.

``With the latest Fed rate cut, the timing is now ripe for a Hong Kong dollar de-peg,''

With the depreciating dollar, Hong Kong's currency has declined 8.2 percent in the past year against the yuan, driving the cost of imported goods higher. One yuan now buys 1.1 Hong Kong dollars. The peg survived the 1998 Asian financial crisis and the 2003 outbreak of severe acute respiratory syndrome.

CPI rose 3.2 percent in January from a year earlier. Eliminating the effect of a property-rate waiver, inflation accelerated to 4.3 percent, the fastest since May 1998.


Encik Wan said...

For retail investors in Malaysia or Singapore, is there anyway to borrow USD or HKD for carry trade purposes?

SP said...

Today THE STAR (21/3/08) posted the global measures to stem credit crisis from 10 August last year til 3 days ago where fed cuts 75 basis point.

Question: is there any effect of any "help" given by any central bank or goverment institution on us slowdown?

From stock market point of view, the answer is certainly no! here are some of the main indices of the world performance from 10 August 07 to 21 march 08:

Dow -6.6%
Nasdaq -11.27%
S/P 500 -8.54%
FTSE -9%
CAC -16.79%
DAX -13.9%
KLCI -7.8%
FSSTI -14.33%
HSI -3.14%
NKY -26.25%
TWSE -5.14%
KOSPI -10.54%
S/P ASX -13.62%
SHG COMP -19.5%
SENSEX +0.85%
SET -0.836%

However, the US Dollar index traded on ICE futures drop heavily from 80.59 on 10 August 07 to 72.8 on 20 March 08. Thats more than 9.6% drop on USD against 6 major currency in the world.

That's mean if anybody longs all the futures of all indiaces in the world, and also longs the USD to hedge against the risk of indices long,then this person will lose big in USD and all indices except SENSEX.

So after all the aid given by central banks of major countries, after FED cut 300 basis point, after numerous talk by so called 'big gun' like george bush, ben bernanke,donald kohn,warren buffet,jim cramer,henry paulson etc,

wat there able to do is weaken the USD and drag down the major indices of the world (except for Mumbai,of course).


Salvatore_Dali said...


i think there is a grave fallacy in yr argument... yes 99% of stock indices have fallen despite all the measures n big speeches by the big wigs...

Can u appreciate the probable fact that if they didn't that the indices may have DOUBLED their losses? Just because indices are negative does not mean anything? We r talking of a credit implosion, I really think without the measures most mkts would have lost 50% in value...

SP said...

Actually, what i mean is that there is almost no "good" effect for the fed 2 do all those "smart" move.

yes the market may have corrected more if notin have been done...

but did it reallt matter?!
20% drop vs possible 50% drop in indices matter?

dont forget what's the opportunity cost behind these move:it really hurt the currency and eventually economy.

Economy is not juz about stock market or bond market.these are just part of the doing all the "smart move", more ppl will be out of job,purchasing power wil reduce and consumer confidence will lost.

300 years ago,adam smith intruduce laissez faire,invinsible hand and all that idea to the world and look like fed still haven learn bout it.

u stil tink these move wise??

SP said...

on yeah,almost forgot the inflationary effect it cost by doing all that.if not because fed cut less than 100 basis point last week, we may have new all time high for commodities around the globe and all time low of dollar index!

hw that gona hurt the us econ?

stock market really that important?