(Bloomberg) -- The Hong Kong Monetary Authority maintained its base rate at 5.75% on Thursday as the US Federal Reserve paused its cycle of hiking rates. 

Hong Kong’s borrowing costs have spiked in the last two years as the Fed embarked on an aggressive tightening cycle to combat inflation — the city’s base rate moves in lockstep with the Fed, given the local currency’s peg to the greenback.

The Fed on Wednesday signaled interest rates will remain higher for longer and policymakers will proceed cautiously as it assesses incoming data. The HKMA highlighted that outlook in a statement Thursday, saying it’s “premature to conclude whether the US rate hike cycle has been completed.”

The monetary authority said Hong Kong financial and money markets were proceeding smoothly, but warned consumers about taking on more debt.

“The public should carefully assess and manage the relevant risks when making property purchase, mortgage or other borrowing decisions,” it said.

Lending Rates

HSBC Holdings Plc announced after the HKMA decision that it would not change its best lending rate. The city’s biggest banks had been hiking lending rates earlier this year as the monetary tightening cycle hits liquidity and increases their funding costs.

Hong Kong’s higher borrowing costs have weighed on the city’s economy and property market. The one-month Hong Kong Interbank Offered Rate — or Hibor, a reference for mortgage loans — is trading near the highest since 2007. While that rate was little changed on Thursday after the HKMA move, it has jumped 41% so far in September.

Homebuyers, meanwhile, have started turning to renting as property sales struggle. HSBC and other local banks raised mortgage rates for borrowers this month, which helps protect their profit margins amid rising Hibor and interest rates.

--With assistance from Iris Ouyang.

(Updates with Hibor and HSBC move.)

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