UPDATE: Hong Kong Banks Keep Lending Rates Steady; Track HKMA, Fed

Hong Kong's major commercial banks kept their prime lending rates unchanged Thursday, matching the decisions by the U.S. Federal Reserve and the city's de-facto central bank to leave their benchmark interest rates at historic lows.

Analysts said they expect the banks' interest rates to hold steady at least into the first half of next year, based on the view that the U.S. Fed won't likely hike rates anytime soon and as interbank liquidity remains very high.

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

Hong Kong's biggest banks have kept their prime rates at current levels since November 2008.

Midas Chu, fixed income dealer at Bank of Communications, said he expects the city's banks to hold prime lending rates steady in the next two quarters.

"Given that the U.S. economic recovery isn't yet on a firm footing, there's no hurry for the U.S. government to raise rates in the near term," Chu said.

Earlier Thursday, 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 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 U.S. Federal Reserve.

Daniel Chan, senior investment strategist at DBS Bank, said the recent spate of currency interventions by the HKMA has significantly increased interbank liquidity, reducing the chance of rates hikes in the near term.

In October, the HKMA sold a total of HK$87.19 billion in the foreign-exchange market, the highest monthly injection on record, reflecting strong demand for the Hong Kong dollar.

Traders and fund managers have said that Hong Kong is one of the preferred destinations for funds in the Asia-Pacific region, due to a vibrant new share offering market and strong demand among foreign investors for shares of locally listed Chinese heavyweights.

Capital inflows have contributed to spiraling asset prices in the city, particularly in the property market, prompting calls by law makers for government measures to curb rising prices.

The International Monetary Fund said in a report Tuesday that it saw "a risk that prices could become driven more by short-term liquidity conditions, divorced from fundamental forces of supply and demand."

-By Chester Yung, Dow Jones Newswires; 852-2802-7002; chester.yung@dowjones.com

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