The Hong Kong Monetary Authority reduced its Base Rate by 25 basis points to 4.00% on 11 December 2025, in an automatic adjustment that followed the United States Federal Reserve's decision to lower its own target range on 10 December (US time). The move brings the Base Rate to its lowest level since October 2022 and represents the third HKMA rate reduction in 2025.
Under Hong Kong's Linked Exchange Rate System, the HKMA's Base Rate adjusts in lockstep with the Fed funds target rate to preserve the Hong Kong dollar's peg to the US dollar within a tight trading band. The HKMA said the rate was set according to its pre-set formula: the higher of 50 basis points above the lower end of the US federal funds target range (4.00%) or the average of the five-day moving averages of overnight and one-month HIBOR (2.39%).
LINKED EXCHANGE RATE SYSTEM
The Linked Exchange Rate System means that Hong Kong does not set monetary policy independently in the conventional sense. Rather than calibrating rates primarily on the basis of domestic inflation or growth conditions, the HKMA adjusts the Base Rate to maintain the integrity of the peg, which holds the Hong Kong dollar within a trading band of 7.75 to 7.85 against the US dollar. Preserving that band is the central monetary policy objective under the currency board framework, and it takes precedence over any independent assessment of Hong Kong's domestic economic cycle.
THIRD CUT OF 2025 LOWERS RATES TO 2022 LOWS
The Base Rate at 4.00% reflects the three HKMA reductions in 2025, which together amount to 75 basis points of easing for the year.
Commercial banks in the territory set their own prime rates independently, and movements in the Base Rate do not automatically and immediately translate into equivalent reductions in customer-facing lending rates.
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