HSBC leads Hong Kong banks in cutting rates, reducing funding cost to historic low of 5%

Led by HSBC, Hong Kong's note-issuing banks cut their prime lending rates - to a historic low of 5 per cent in some cases - on Thursday, further reducing funding costs to help reboot the city's businesses and reduce the burden on mortgage borrowers.

The Hong Kong Monetary Authority (HKMA) cut the base rate by a quarter point to 4.25 per cent on Thursday morning, hours after the US Federal Reserve pared its target rate by the same margin to a range of 3.75 per cent to 4 per cent during the seventh meeting of the Federal Open Market Committee (FOMC) this year. The new base rate is the lowest for Hong Kong since November 2022.

HSBC and Bank of China (Hong Kong) trimmed their prime lending rate by 12.5 basis points to a historic low of 5 per cent, they said in separate statements on Thursday. Standard Chartered cut its prime lending rate by the same margin to 5.25 per cent. All three banks reduced their savings rate by 12.4 basis points to 0.001 per cent. Only customers with deposits above HK$5,000 (US$643) earn the rate, while those with less continue to earn no interest.

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HSBC's new rates will start on Friday, while BOCHK and Standard Chartered will change theirs from Monday. Hong Kong's prime rate last stood at 5 per cent in September 2022.

This marked the second rate cut in six weeks for the lenders, after a 12.5-basis-point reduction in September. The city's other banks are expected to follow suit later on Thursday.

"The rate adjustments announced today come in response to another rate cut in the US, taking into account the local market conditions," said Maggie Ng, HSBC's newly appointed Hong Kong CEO and the bank's head of retail banking and wealth.

Although analysts said the lenders would not cut their prime rate below 5 per cent, Ng said HSBC would be "ready to adjust our rates as needed" according to close monitoring of "the external environment and local economic development".

Together with a quarter-point rate cut in September, central banks in Hong Kong and the US have cut the key interest rate by half a percentage point.

"The rate cut will be positive for the economy and the property market in Hong Kong," said HKMA chief executive Eddie Yue Wai-man in a media briefing on Thursday. "However, the pace of future rate cuts remains quite uncertain."

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Tariff uncertainties and the unavailability of certain major economic data have "added complexity to the assessment" of the US labour market and inflation trends, he said, adding that "the public should carefully manage interest rate risk when making financial decisions".

A fruit stall at the Bowrington Road Market in Causeway Bay on July 19, 2025. Photo: Dickson Lee alt=A fruit stall at the Bowrington Road Market in Causeway Bay on July 19, 2025. Photo: Dickson Lee>

A 12.5-basis-point rate cut reduces the effective mortgage rate to 3.25 per cent, lowering the monthly payment by HK$345 to HK$21,760 on a 30-year, HK$5 million loan priced at prime minus 1.75 per cent, according to mReferral, a mortgage broker.

Hong Kong homebuyers had HK$1.89 trillion in outstanding mortgage loans with banks as of the end of August, with an average mortgage size of HK$4.61 million for new loans during the month, according to the HKMA's data.

The Fed's decision was widely expected, with 99.9 per cent of traders predicting a 25-basis-point cut, according to Tuesday's data from CME FedWatch, which is based on Fed fund futures contracts.

The main reason the Fed eased monetary policy was "emerging cracks in previously solid jobs dynamics", said David Kohl, chief economist at Julius Baer, in a research note on Tuesday. "Elevated inflation, partly driven by steep tariff increases on imported goods, makes gradual rate cuts of 25 basis points the preferred path of policy easing."

This is the second-rate cut since September 18, following five consecutive FOMC meetings this year without changes. The Fed cut rates by a total of one percentage point between September and December last year.

US Federal Reserve Chair Jerome Powell spoke during a press conference at the end of a Monetary Policy Committee meeting in Washington DC, on October 29, 2025. Photo: Agence-France Presse alt=US Federal Reserve Chair Jerome Powell spoke during a press conference at the end of a Monetary Policy Committee meeting in Washington DC, on October 29, 2025. Photo: Agence-France Presse>

The Fed's chairman Jerome Powell tried to tamp down expectations of another quarter-point cut in December at the FOMC's final meeting of the year.

"A further reduction in the policy rate at the December meeting is not a foregone conclusion - far from it," he said in the opening comments of his post-meeting press conference. His comment weighed on the US stock market, sending benchmark indexes lower.

The futures market is now pricing in a 69 per cent chance of a quarter-point cut in December, down from 92 per cent before the meeting, according to CME FedWatch.

"An improvement in employment conditions or a spike in inflation could keep the committee on hold, but if conditions evolve as we expect, a December rate cut remains likely," said Tai Hui, APAC chief market strategist with JPMorgan Asset Management, in a research note on Thursday.

"Short-term pressure on Asian markets is likely, given the rebound in the US dollar and bond yields."

The US unemployment rate rose to 4.3 per cent in August, the highest since 2021, helping to justify the rate cut even though inflation is still rising. US inflation hit 3 per cent in September, up from 2.9 per cent in August, 2.7 per cent in July and June and 2.4 per cent in May. Inflation reached a record high of 9.1 per cent in mid 2023.

Retail outlets in Hong Kong's Causeway Bay on November 29, 2024. Photo: Nora Tam alt=Retail outlets in Hong Kong's Causeway Bay on November 29, 2024. Photo: Nora Tam>

Under a currency peg known as the Linked Exchange Rate System, Hong Kong's monetary policy has moved in lockstep with Fed policy since 1983.

The commercial banks are free to decide when to change their rates and do not always follow the HKMA's base rate decisions.

In September, the lenders cut their prime lending and savings deposit rates by 12.5 basis points. HSBC and its subsidiary Hang Seng Bank, as well as Bank of China (Hong Kong), now have their prime rate at 5.125 per cent, while Standard Chartered and most other major lenders set it at 5.375 per cent. All the banks have their savings rate at 0.125 per cent.

"The rate cut is slightly positive for small and medium-sized enterprises and mortgage borrowers," said Tommy Ong, the managing director of T.O. & Associates Consultancy. "It will be more positive if there is also a lower interbank interest rate from the current level."

The one-month Hong Kong interbank offered rate (Hibor), which is used to price many mortgage loans, rose to 3.4373 per cent on Tuesday, up from around 0.5 per cent in June after the HKMA intervened to defend the peg against carry-trade activity.

HKMA's Yue also said the Hibor tends to gradually track US interest rates, which would lower the cost of funding in the city, supporting the local economy.

The three-month Hibor, which is linked with many corporate loans, rose to 3.5563 per cent from 1.5409 per cent in late June, according to data published by the Hong Kong Association of Banks.

"Hong Kong banks follow the Fed and HKMA rate cut on Thursday because non-performing loans remain elevated," said Ryan Lam Chun-wang, head of research for Hong Kong at Shanghai Commercial Bank. "They need the relief valve to ease the pressure."

After Hong Kong lenders decided to cut the prime rate by 0.125 percentage points on Thursday, the prime rate would again drop to the historical low of 5 per cent and would not be likely to drop further, according to Ong.

"The saving rate will drop to zero when HSBC and major lenders' prime rates drop to 5 per cent," he said. "They would not let the savings rate go negative, so they cannot cut the prime rate further."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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