Hong Kong's domestic credit growth seen to rise further

Could also increase property market bubble risks.

According to Nomura, the Fed's dovish stance surprised markets in Asia. Today, the Hong Kong Monetary Authority kept the discount window base rate at 0.5%. Prolonged ultra-low interest rates should boost domestic credit growth in Hong Kong, considering its tight labour market.

Here's more from Nomura:

Indeed, domestic credit growth has accelerated since mid-2012 and surged to 12.1% y-o-y in Q2 2013, which outpaced nominal GDP growth of 4.0%. Also, Hong Kong's current account balance became a deficit of HKD1.3bn (0.3% of GDP) in Q1 2013, as saving rates fell and investment rates rose.

Given its sizable FX reserves and solid fiscal position, a small current account deficit does not indicate financial risks in Hong Kong. However, higher domestic credit growth should increase property market bubble risks.