HKMA Base Rate vs the Fed: why the gap is 25 basis points, and what the October FOMC could change
Hong Kong's Base Rate is 4.25%, 25 basis points above the Fed's 4.00% upper bound, because a published formula keeps it there. How the gap compares across Asia, what it looks like after inflation, and what the 27-28 October FOMC could mean.
When the Fed raised rates in September, Hong Kong followed within a day. That is not a coincidence or a policy choice: under the peg, Hong Kong’s official rate is tied to the US by a formula, so the gap that other Asian markets argue about each month is fixed here by design.
How far is Hong Kong’s Base Rate from the Fed?
Hong Kong’s Base Rate is 25 basis points above the Fed. The Base Rate is 4.25% and the upper end of the Fed’s target range is 4.00%, after the FOMC raised the range to 3.75%-4.00% on 16 September 2026. That was the Fed’s first increase since 26 July 2023, according to the change history in FRED.
HKMA Base Rate (4.25%) minus the upper end of the Fed's target range (4.00%), 17 October 2026
The HKMA announced on 17 September that the Base Rate “has been set at 4.25% with immediate effect according to a pre-set formula”. The formula takes the higher of two numbers: the Fed’s lower bound plus 50 basis points (3.75% + 0.50% = 4.25%), and the average of the five-day moving averages of overnight and one-month HIBOR, which was 2.50% that day. Because the Fed’s range is 25 basis points wide, “lower bound plus 50” always lands 25 basis points above the upper bound.
Has the gap always been 25 basis points?
At every year-end since 2022, yes. The exception in this table is 2019, when the HIBOR side of the formula was higher and the Base Rate moved from day to day.
Has the gap always been 25 basis points?
Gap
Shared linear scale from zero. Selected entries from the table below. Its dates, units, definitions and limitations still apply.
| Point in time | Fed upper bound | HKMA Base Rate | Gap |
|---|---|---|---|
| End of 2019 | 1.75% | 2.49% | +74 bp |
| End of 2022 | 4.50% | 4.75% | +25 bp |
| Fed peak, 26 July 2023 (Hong Kong: 27 July) | 5.50% | 5.75% | +25 bp |
| End of 2023 | 5.50% | 5.75% | +25 bp |
| End of 2024 | 4.50% | 4.75% | +25 bp |
| End of 2025 | 3.75% | 4.00% | +25 bp |
| 17 October 2026 | 4.00% | 4.25% | +25 bp |
Base Rate values are from the HKMA’s daily interbank liquidity data on the last business day of each year. In late December 2019 the rate was 2.35% on the 27th and 2.43% on the 30th before reaching 2.49% on the 31st, which is what a HIBOR-driven formula looks like.
In 2026 there was only one change, and it came from Washington rather than from a Hong Kong meeting:
| Fed decision (US date) | Fed target range | HKMA Base Rate | Gap |
|---|---|---|---|
| January, March, April, June and July: no change | 3.50%-3.75% | 4.00% | +25 bp |
| 16 September: +25 bp | 3.75%-4.00% | 4.25% from 17 September | +25 bp |
How does Hong Kong compare with the rest of Asia, before and after inflation?
Among the markets compared here, Hong Kong has the fourth-largest gap above the Fed but the highest simple real policy rate, because its inflation is low.
| Market | Policy rate | Gap vs Fed upper bound | Latest CPI, year on year | Real policy rate (simple) |
|---|---|---|---|---|
| Hong Kong | 4.25% (Base Rate) | +25 bp | 1.7% (Aug) | +2.55 pp |
| Indonesia | 5.75% (BI-Rate) | +175 bp | 3.28% (Sep) | +2.47 pp |
| Philippines | 5.00% (BSP) | +100 bp | 7.2% (Sep) | −2.20 pp |
| Vietnam | 4.50% (refinancing rate) | +50 bp | 5.08% (Sep) | −0.58 pp |
| Malaysia | 2.75% (OPR) | −125 bp | 1.9% (Aug) | +0.85 pp |
| Taiwan | 2.00% (discount rate) | −200 bp | 2.73% (Sep) | −0.73 pp |
| Japan | around 1.25% | −275 bp | 1.9% (Aug) | −0.65 pp |
| Thailand | 1.00% | −300 bp | 2.82% (Sep) | −1.82 pp |
| Singapore | no policy rate (exchange-rate band) | not applicable | 2.3% (Aug) | not applicable |
| United States | 3.75%-4.00% | — | 3.7% (Sep) | +0.30 pp |
Policy rates as at 17 October 2026. Gaps and real rates are CapsWindow calculations (policy rate minus Fed upper bound; policy rate minus latest headline CPI). Hong Kong’s CPI is from the government’s August release; US CPI is from the BLS.
Hong Kong's Base Rate minus August 2026 CPI inflation of 1.7% (calculated). The US figure is +0.30 pp
The Base Rate is set to track US rates, but Hong Kong’s inflation is not US inflation. In September US consumer prices rose 3.7% from a year earlier, while Hong Kong’s rose 1.7% in August. The same nominal link therefore produces a much higher real rate in Hong Kong. Indonesia comes close for a different reason: Bank Indonesia raised its rate three times between May and June 2026.
What to watch at the end of October
The Hong Kong decision follows the US decision, so the date to watch is the FOMC on 27-28 October (Fed calendar). Any change to the Base Rate would be announced on 29 October Hong Kong time.
| Local date | Decision | Current rate | Published view |
|---|---|---|---|
| 21 October | Bank Indonesia | 5.75% | MUFG forecasts +25 bp to 6.00%, while noting the consensus expects a hold |
| 22 October | Bangko Sentral ng Pilipinas | 5.00% | MUFG and PNB expect +25 bp to 5.25% |
| 27-28 October (US) | FOMC | 3.75%-4.00% | Press reports of CME FedWatch: hike odds around 15-17% on 16 October |
| 28 October | Bank of Thailand | 1.00% | No forecast collected |
| 29 October (Hong Kong) | HKMA Base Rate | 4.25% | Formula: 4.50% if the Fed raises by 25 bp, 4.25% if it holds |
| 29-30 October | Bank of Japan | around 1.25% | No forecast collected |
| 5 November | Bank Negara Malaysia | 2.75% | Apex Securities expects a hold |
Views in the table are forecasts by the named firms (MUFG, 16 October), not outcomes. Market pricing for the Fed shifted quickly that week. CME FedWatch priced an October hike at 41.5% on 14 October, according to Yahoo Finance (24/7 Wall St.). By 16 October reports put it at about 15% to 17%, after Fed Chair Kevin Warsh said “I don’t prejudge meetings” (Cointelegraph).
The arithmetic for Hong Kong is simple. If the Fed holds, the Base Rate stays at 4.25% and the gap stays at +25 basis points. If the Fed raises by 25 basis points, the formula gives 4.50% and the gap is still +25. Either way, every other market in the table that leaves its own rate unchanged would see its gap with the Fed shift by the same 25 basis points. Hong Kong would not.
Does a gap with the Fed move the Hong Kong dollar?
Not through the Base Rate. The gap there is fixed, so it cannot explain anything that moves. The Linked Exchange Rate System holds the Hong Kong dollar between 7.75 and 7.85 per US dollar. When money flows in or out, the adjustment shows up in interbank liquidity and HIBOR.
On 16 October 2026 overnight HIBOR was 2.13% and one-month HIBOR 2.7078%, both below the Fed’s 3.75%-4.00% range. That short-term gap between HIBOR and US rates, not the Base Rate gap, is what carry traders watch. In 2025 it was wide enough to push the Hong Kong dollar to the 7.85 limit, as our note on the Hong Kong-US yield gap explains.
Rate assumptions also change what a future sum will cost. To try different growth paths for an amount you will need later, open the future need calculator.
Estimate a future amount in HKD →
The Base Rate is the HKMA's Discount Window rate. It is not the rate most households pay; mortgages and deposits are priced by banks with reference to HIBOR or their own prime rates. Real policy rates here are a simple subtraction using each market's latest CPI month (August for Hong Kong, September for the US), so the comparison mixes months. FedWatch odds are taken from press reports at different times of day and change daily. Forecasts belong to the firms named. This note was written on 17 October 2026, before any of the decisions listed above.
Questions & answers
Does the HKMA decide whether to raise interest rates?
Not in the way most central banks do. Under the Linked Exchange Rate System the Base Rate follows a pre-set formula: the higher of the Fed's target range lower bound plus 50 basis points, and the average of the five-day moving averages of overnight and one-month HIBOR. When the Fed raised its range on 16 September 2026, the Base Rate moved from 4.00% to 4.25% the next day.
Will the Base Rate go to 4.50% after the October FOMC?
Only if the Fed raises its range. A 25 basis point increase would put the lower bound at 4.00%, and 4.00% plus 50 basis points is 4.50%, provided the HIBOR average stays below that. If the Fed holds, the Base Rate stays at 4.25%. The decision is due on 28 October US time, 29 October in Hong Kong.
Why is HIBOR so far below the Base Rate?
They are different rates. The Base Rate is the HKMA's Discount Window rate and is set by formula, while HIBOR is the rate banks charge each other and moves with liquidity in the banking system. On 16 October 2026 overnight HIBOR was 2.13% and one-month HIBOR 2.7078%, both well below 4.25%.
Source
- Federal Reserve - FOMC statement, 16 September 2026 ↗
- Federal Reserve - FOMC meeting calendars ↗
- FRED - Federal funds target range, upper limit (DFEDTARU) ↗
- HKMA - Base Rate set at 4.25%, 17 September 2026 ↗
- HKMA - Base Rate under the Linked Exchange Rate System ↗
- HKMA - Daily figures of interbank liquidity (API) ↗
- Hong Kong Government - Consumer Price Indices for August 2026 ↗
- US Bureau of Labor Statistics - Consumer Price Index, September 2026 ↗
- Yahoo Finance (24/7 Wall St.) - CME FedWatch odds, 14 October 2026 ↗
- Cointelegraph - FedWatch odds after Warsh remarks, 16 October 2026 ↗
- MUFG Research - Asia FX Weekly, 16 October 2026 ↗