Bank of China (Hong Kong) said it will reduce its Hong Kong dollar prime rate by 12.5 basis points to 5.125%, trimming lending costs for households and companies after the city’s de facto central bank followed the Federal Reserve with a rate cut.
The change takes effect next week, in line with the timing announced by peers.
The Hong Kong Monetary Authority set the Base Rate at 4.50% on Thursday, a quarter-point reduction that mirrors the Fed’s move the prior day.
It is the first cut since December 2024 and reflects the currency board system that ties the Hong Kong dollar to the U.S. dollar.
Major lenders have begun to pass part of that reduction through to borrowers.
HSBC said it will lower its Hong Kong dollar best lending rate by 12.5 basis points to 5.125 percent, while Standard Chartered announced a cut to 5.375%.
Changes across the banking sector are staggered over the coming days as institutions finalize operational adjustments.
For Bank of China (Hong Kong), the cut moves its prime rate from 5.25% to 5.125%.
That level remains above the Base Rate, a spread that typically reflects funding costs, competition for deposits, and the need to balance loan growth with profitability.
The bank’s decision arrives as Hong Kong’s wider funding benchmarks ease following the HKMA move.
The HKMA emphasized that local markets remain orderly and that the rate adjustment should support the economy and property activity.
Because Hong Kong’s policy path tracks the United States, expectations for further U.S. easing later this year will be a key driver of any additional changes to local borrowing costs.
Mortgage borrowers stand to benefit first, many floating-rate home loans in Hong Kong are priced off banks’ prime rates or short-tenor HIBOR benchmarks, so a 12.5-basis-point decline filters into monthly payments, albeit modestly at the outset.
Cheaper credit can improve cash flow and sentiment for developers and small businesses after a prolonged period of tight financial conditions.
Deposit customers may see lower returns as banks recalibrate savings rates alongside prime.
Lenders typically adjust deposit pricing in tandem with lending rates, which helps preserve net interest margins as policy rates fall. The extent of those changes will vary by bank and product as competition for customer balances remains active.
If U.S. policy makers follow through with additional cuts, local lenders could trim prime rates further, though the pace and size will depend on global funding costs and the strength of domestic demand.
For now, the blend of a lower Base Rate and selective prime reductions should ease debt service burdens at the margin without upending banks’ profitability targets.
Investors will watch how quickly loan growth responds and whether mortgage refinancing picks up as rates edge lower.
