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.
The 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.
The 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.
“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.
Jerome 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.
Lam 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.
