The Hong Kong Monetary Authority maintains the benchmark interest rate at 4.0%, ensuring stability and progress under the linked exchange rate mechanism

1、 Link mechanism: The underlying logic of Hong Kong dollar interest rates passively following the US dollar

The core principle of Hong Kong's monetary policy stems from the linked exchange rate system implemented since 1983. This system strictly locks the Hong Kong dollar to US dollar exchange rate within a narrow range of 7.75-7.85. The Hong Kong Monetary Authority maintains the stability of the Hong Kong dollar exchange rate by implementing an exchange guarantee mechanism where strong parties sell Hong Kong dollars (7.75 Hong Kong dollars to 1 US dollar) and weak parties buy Hong Kong dollars (7.85 Hong Kong dollars to 1 US dollar). Under this framework, Hong Kong does not have an independent monetary policy, and local interest rates are basically synchronized with the policies of the Federal Reserve. If the Federal Reserve raises interest rates, Hong Kong will follow suit, and if the Federal Reserve cuts interest rates, Hong Kong will also cut interest rates simultaneously. The maintenance of interest rates unchanged this time is a direct manifestation of this mechanism.

Under the linked exchange rate system, the overall Hong Kong dollar interest rate tends to approach the US dollar interest rate, and only short-term interest rates may experience slight fluctuations due to local Hong Kong dollar funding supply and demand, seasonal factors, and capital market activities. This "passive following" model, although sacrificing the independence of monetary policy, has laid a solid foundation for financial stability in Hong Kong. Despite multiple global financial crises, it has operated steadily and consolidated Hong Kong's position as an international financial center.

2、 External constraints: escalating tensions in the Middle East, uncertainty over interest rate cuts

The Federal Reserve and the Hong Kong Monetary Authority have simultaneously maintained interest rates unchanged this time, with the core external variable being the ongoing geopolitical tensions in the Middle East. The current Middle East conflict is recurring, directly impacting the global energy supply chain, pushing up international oil prices, and exacerbating the risk of global inflation rebound. Although the Federal Reserve's dot matrix suggests a 25 basis point interest rate cut within 2026, the uncertainty in the Middle East has cast a shadow over the trend of US inflation and the timing and magnitude of interest rate cuts. The Federal Reserve is forced to choose a "wait-and-see" approach to avoid reckless easing and triggering inflation fluctuations.

This uncertainty is directly transmitted to Hong Kong. As a highly open international financial center, the Hong Kong market is highly sensitive to global capital flows and energy price fluctuations. The global market risk aversion triggered by the situation in the Middle East, coupled with the ambiguous policy path of the Federal Reserve, has led the Hong Kong Monetary Authority to choose to maintain interest rates unchanged. This is actually a rational choice to avoid external risks, stabilize the local financial market, and prevent frequent fluctuations in interest rates from impacting the real estate market, stock market, and cross-border capital flows.

3、 Endogenous resilience: Hong Kong's impressive economic growth provides stable confidence

In sharp contrast to global interest rate uncertainty, the strong resilience demonstrated by the Hong Kong economy provides endogenous support for maintaining interest rate stability. Data shows that in the fourth quarter of 2025, Hong Kong's GDP grew by 3.8% year-on-year, reaching a two-year high. The annual GDP grew by 3.5% year-on-year, maintaining an expansion trend for three consecutive years.

The growth is driven by multiple factors: strong performance in goods exports, with a year-on-year growth of 15.5% in the fourth quarter of 2025, strong demand in the electronics industry, and active intra Asian trade as the core driving force; The tourism industry visiting Hong Kong continues to recover, and cross-border financial service activities are active, driving steady growth in service output; Domestic demand continues to rebound, with private consumption spending increasing by 2.7% year-on-year and total fixed capital formation increasing by 10.5% year-on-year. Confidence in the real estate and investment markets is gradually recovering. The steady growth of the economy allows Hong Kong to rely on stable interest rates to consolidate financial market confidence and attract sustained global capital inflows, without the need to stimulate the economy through interest rate cuts.