The Hong Kong Monetary Authority kept its base rate at 4.00% on 29 January 2026, moving in lockstep with the United States Federal Reserve, which held its target range at 3.50% to 3.75% at its January policy meeting. The HKMA's base rate is set under Hong Kong's linked exchange rate system, which pegs the Hong Kong dollar to the US dollar.
Under the linked exchange rate system, which has been in operation since 1983, the HKMA manages the Hong Kong dollar within a narrow band against the US dollar and sets its base rate at 50 basis points above the lower end of the Fed's target range (or a HIBOR-based average, if higher). This arrangement means that local borrowing costs, including mortgage rates and corporate lending rates, are heavily influenced by US monetary policy, although shorter-tenor interbank rates also reflect local Hong Kong dollar funding conditions.
THE MECHANICS OF THE LINKED EXCHANGE RATE
The base rate maintained by the HKMA serves as the reference point for the discount window through which licensed banks can access overnight liquidity. When the Federal Reserve adjusts its federal funds rate, the HKMA moves its base rate correspondingly to preserve the interest rate differential that underpins the peg mechanism. A sustained divergence between Hong Kong and US interest rates would generate capital flows that could push the exchange rate towards the edges of its 7.75–7.85 band.
The Fed's January 2026 decision to hold its target range at 3.50% to 3.75% comes after a period of rate reductions from the peak levels reached during the 2022–2023 inflation cycle. For Hong Kong, the base rate remains at 4.00%, unchanged from the prior setting.
The HKMA said Hong Kong's monetary and financial markets had continued to operate in an orderly manner, and urged the public to manage interest-rate risks carefully as the future path of US rates remained quite uncertain.
Bank news that matters, every weekday.
Follow The Global Banker on LinkedIn