Hong Kong interbank rates forecast to drop on expected US monetary easing in 2026

The US Federal Reserve under a new chairman in 2026 is expected to press ahead with interest rate cuts of up to 75 basis points, a move that would lower Hong Kong’s interbank-linked loan costs but leave prime lending rates stuck at their historical low, according to analysts.\nThe Fed and the Hong Kong Monetary Authority (HKMA) both reduced their key policy rates by a total of 75 basis points in 2025, following a full percentage-point rate cut in 2024. Hong Kong’s base rate now stands at 4 per cent, the lowest since October 2022, while the US benchmark rate remains in a range of 3.5 per cent to 3.75 per cent.\nThe HKMA has shadowed the Fed’s monetary policy since 1983 under its linked exchange-rate system, but commercial banks retain discretion in setting their prime and deposit rates.\n“The new Fed chairman will cut interest rates more than the market expects in 2026,” said Ryan Lam Chun-wang, Hong Kong head of research at Shanghai Commercial Bank.\nJerome Powell’s term as Fed chair ends in May 2026, after leading the world’s most influential central bank since 2018. US President Donald Trump has repeatedly criticised Powell for moving too slowly on rate cuts, while analysts believe his successor would likely support further easing to boost the economy.\n\nLam forecast three rate cuts by the Fed totalling 75 basis points in 2026. That would bring the one-month Hong Kong interbank offered rate (Hibor) down to 2.26 per cent at the end of 2026, compared with 3.18 per cent on December 18, he said, adding that three-month Hibor would fall to 2.3 per cent from 3.1 per cent.\nVeteran forex trader and independent analyst Jasper Lo also predicted three Fed rate cuts totalling 75 basis points in 2026. “The US economy is weak and the inflation pressure is low,” Lo said. “This paves the way for more US interest rate cuts.”\nOther analysts expect a less aggressive path. Barclays analysts Marc Giannoni, Jonathan Millar, Pooja Sriram and Colin Johanson said in a December note that they anticipated two rate cuts.\n“We retain our baseline expectation that the FOMC [Federal Open Market Committee] will deliver two 25-basis-point rate cuts in 2026, in March and June, after seeing signs that tariff-led price increases have peaked on a month-on-month basis and gaining confidence that inflation is returning towards the 2 per cent goal,” they said.\n“Our view is that the Fed will have rate cuts over 2026, given slowing growth in the US and the appointment of a new Fed chair who is likely to lean dovish,” said Aaron Costello, head of Asia at Cambridge Associates.\n“The magnitude of rate cuts remains to be seen, but the direction of interest rates is down, not up. This should continue to boost liquidity in Asia, and particularly Hong Kong,” he said.\nAnalysts agreed that lower US rates in 2026 would drive down Hibor – benefiting borrowers with Hibor-linked mortgages and corporate loans – but prime rate loans would remain unchanged.\nLocal commercial banks trimmed their prime rate – the lending rate offered to their best customers – by 25 basis points in 2025 after a 62.5-basis-point cut in 2024.\n\nBank of China (Hong Kong), HSBC and its subsidiary Hang Seng Bank now set their prime rate at 5 per cent, while Bank of East Asia, Standard Chartered and ICBC (Asia) maintained their prime rate at 5.25 per cent. Savings rates remained at 0.001 per cent.\nThis left Hong Kong’s prime rate at its historical low of 5 per cent, which was seen from 2009 to 2018 and again from 2019 to November 2022.\nEric Tso Tak-ming, chief vice-president of mortgage broker mReferral, said banks were unlikely to cut their prime rate further as savings rates were already close to zero. Cutting their prime rate without cutting savings rates would hurt their profitability, he added.\n“But borrowers in Hong Kong will still benefit from a US rate cut as Hibor will become lower,” Tso said. “This will be positive for the property market outlook.”\nLam agreed, saying the prime rate would be “pinned to the current level” as savings rates were “already reduced to the bone”.\nHe added that banks may instead ease funding costs for customers by compressing mortgage spreads linked to the prime rate, adjusting Hibor-linked mortgage ceilings, or revising fee charges in line with retreating funding costs.\n