Hong Kong industry expects the Federal Reserve may still cut interest rates this year, but local banks may not follow suit.

What are the economic factors behind Hong Kong banks not following the Fed’s interest rate cuts?

China News Service, Hong Kong, March 19 (Reporter Wei Huadu) — After the Federal Reserve’s (Fed) second policy meeting in 2026, it announced that interest rates would remain unchanged. Industry insiders in Hong Kong analyzed on the 19th that the Fed still has the opportunity to cut rates this year, but Hong Kong banks may not follow.

On the same day, three note-issuing banks in Hong Kong — Standard Chartered Bank (Hong Kong) Limited, Bank of China (Hong Kong) Limited, and HSBC Hong Kong — announced that their best lending rates would remain unchanged.

The Hong Kong Monetary Authority stated that the Fed may cut interest rates by another 25 basis points within the year, but the market generally believes that there is significant uncertainty about the future direction of U.S. monetary policy. Recent tensions in the Middle East have also introduced greater volatility to oil prices and U.S. inflation trends.

On March 19, HSBC Hong Kong and Bank of China (Hong Kong) announced that their best lending rates would stay at 5%, while Standard Chartered Bank (Hong Kong) announced it would keep its best lending rate at 5.25%. The photo shows the HSBC headquarters building (second from right), Bank of China Tower (first from left), and Standard Chartered Bank Building (first from right). — China News Service, Photographer Li Zhihua

Standard Chartered Hong Kong Wealth Solutions Investment Strategy Manager Chen Zhenglu said that the Fed still has the chance to cut rates in the second half of the year. However, the Middle East situation remains uncertain, and if oil prices stay high for a prolonged period, it could impact the rate-cut plans.

Bank of China (Hong Kong) Wealth Strategy and Analysis Department Head Zhang Shiqi stated that there is still a possibility of rate cuts within the year, mainly depending on how oil prices affect the U.S. economy and whether the employment market remains healthy.

OCBC Bank Hong Kong Economist Jiang Jing said that the Hong Kong dollar’s best lending rate has returned to its long-term average level, and there is limited room for adjustment, so Hong Kong banks may not necessarily follow rate cuts. Owen Zhaoqi, Head of Asset Management for Asia at Aon, also believes that the Fed may cut rates by at most 0.25 percentage points this year, and Hong Kong banks may not fully follow.

Additionally, the Hong Kong dollar exchange rate has recently weakened, touching a seven-month low at one point. Analysts pointed out that the main reason for the Hong Kong dollar’s weakness is the interest rate differential. In the short term, attention should be paid to whether the Hong Kong dollar will trigger the weak-side convertibility guarantee, leading to liquidity tightening and pushing up the cost of interbank borrowing.

The Hong Kong Monetary Authority stated that under the linked exchange rate system, Hong Kong dollar interbank rates generally tend to follow U.S. dollar interest rates. Short-term interbank rates are also influenced by local market factors such as seasonal demand and capital market activities. (End)