UPDATE: Hong Kong Banks Keep Prime Rates Steady As HKMA Stands Pat

Hong Kong's major commercial banks left their prime lending rates unchanged Wednesday, after the U.S. Federal Reserve and Hong Kong's de-facto central bank kept their benchmark interest rates steady.

HSBC Holdings PLC (HBC) units Hongkong & Shanghai Banking Corp. and Hang Seng Bank Ltd. (0011.HK) left their prime rates unchanged at 5.00%, as did BOC (Hong Kong) Ltd. (2388.HK). Bank of East Asia Ltd. (0023.HK) kept its prime lending rate at 5.25%.

The prime rates of all four banks haven't changed since November 2008, and their decisions Wednesday were widely expected, signalling the low interest-rate environment won't change until at least the third quarter, given the U.S. rate outlook, analysts said.

Daniel Chan, an investment strategist at DBS Bank, said the Federal Reserve's statement indicated there is no rush to raise the policy rates, and the earliest rate hike is likely to happen late in the third quarter or early in the fourth quarter.

"However, the key concern is capital flows. Any massive outflows could push market interest rates higher," Chan said.

Chan added he doesn't expect any massive outflows in the next few months, as the upcoming initial public offerings in the city will likely attract inflows. Ample liquidity can also help curb a rate hike, he said.

Aggregate balance, which measures commercial banks' clearing and reserve account holdings with the central bank, stood at HK$199 billion Wednesday. Analysts said market interest rates are unlikely to rise meaningfully unless the aggregate balance drops to HK$10 billion or less. The benchmark three-month Hong Kong interbank offered rate was 0.10%, compared with 0.09% Tuesday.

Meanwhile, inflows are set to rise on sizable IPOs in the pipeline, including Swire Pacific's US$3 billion spinoff of its property unit, which is likely to be launched after the Easter holidays in the first week of April.

Earlier Wednesday, the Hong Kong Monetary Authority said it kept its base rate unchanged at 0.50%, in line with the U.S. Federal Open Market Committee's decision overnight to keep its policy rate steady. The Federal Reserve said in the statement that short-term interest rates will remain "exceptionally low" for an "extended period."

The territory's currency peg to the U.S. dollar bolts Hong Kong's monetary policy to that of the U.S., so the HKMA generally follows in lockstep any interest rate adjustments by the Federal Reserve.

-By Chester Yung, Dow Jones Newswires; 852-2832 2331; [e-mail]