On 30 January 2025, the Hong Kong Monetary Authority (HKMA) issued a statement following the United States Federal Reserve’s (US Fed) decision to keep the federal funds rate unchanged at 4.25-4.5% after its two-day Federal Open Market Committee (FOMC) meeting. The US Fed’s policy stance aligns with market expectations, though the future trajectory of rate cuts remains uncertain, influenced by US inflation trends, labour market conditions, the effects of prior monetary policy actions, and new economic policies under the recently elected administration.
The HKMA confirmed that Hong Kong’s financial and monetary markets have continued to operate smoothly and remain stable. Market liquidity conditions are steady, and the Hong Kong dollar exchange rate remains within its expected range under the Linked Exchange Rate System. The HKMA reiterated that Hong Kong dollar interbank rates generally move in tandem with US dollar rates, though shorter-tenor interbank rates are also affected by local factors such as seasonal demand for Hong Kong dollar funding and capital market activities.
Although financial markets had anticipated eventual rate reductions later in 2025, there remains uncertainty regarding the pace and timing of these cuts. Factors such as fiscal stimulus, trade policies, and broader global economic conditions under the new US administration are expected to influence the US Fed’s next moves. For Hong Kong, the interest rate environment is largely dictated by the Linked Exchange Rate System, which pegs the Hong Kong dollar (HKD) to the US dollar (USD). As a result, any adjustments to US interest rates directly affect Hong Kong’s monetary conditions. While Hong Kong’s financial system remains resilient, interest rates are expected to remain relatively high for some time, posing potential challenges for borrowers, businesses, and property investors.
Given the uncertainty surrounding future US interest rate adjustments, the HKMA has urged the public to carefully assess interest rate risks when making financial decisions related to property purchases, mortgages, or other borrowings.
(Source: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/01/20250130-3/)
