Following Hong Kong’s HIBOR (Hong Kong Interbank Offered Rate) fall in the last couple of business days, economists expect it will hover between 2-3 percent in the coming two quarters, providing a stable environment for asset markets and the real economy in the Hong Kong Special Administrative Region in 2026.

Due to the unwinding of carry trades, seasonal factors such as strong IPO (initial public offering) activity and dividend payment, silver bond issuance, as well as stock market inflows, the demand for Hong Kong dollars soared which in turn drove the one-month HIBOR up to 3.92 percent in September.

The Hang Seng Index has surged over 30 percent year-to-date, following an 18 percent gain last year, with an average daily turnover more than double that of 2024. IPO  fundraising reached about $28 billion as of October, making the city the global leader in IPO fundraising so far this year, with follow-on fundraising reached $61 billion in the same period.

But starting in October and November, falling net inflows of southbound equity funds, no mega IPO fundraising, and the end of dividend payment season, pushed down the one-month HIBOR to 2.3 percent. As at Dec 3, the one-month HIBOR stood at 2.88 percent.

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“We expect the US Fed will slash the federal funds rate by 25 basis points in the December meeting. When the US interest rate decrease cycle may end by the second quarter of 2026, we forecast the overnight, one-month, two-month and three-month HIBOR will slip to 2.8 percent,” Keung Ching, executive director and economist at OCBC Bank (Hong Kong), told China Daily.

Keung said the overall HIBOR will exhibit a downward cycle that will support Hong Kong economic growth next year.

“A decreasing trend of HIBOR will encourage consumption and investment activities at least for the first half of 2026. And the bullish sentiment regarding global economic growth and asset market performance will also extend into the first half of next year. Therefore, we forecast Hong Kong’s economic growth will be 3.4 percent for 2025 and 2.6 percent for 2026,” Keung explained.  

HIBOR is a Hong Kong dollar-based interest rate benchmark for lending between banks in the city, and is the benchmark rate reference for determining the interest rate of mortgage loans in Hong Kong.

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A declining HIBOR will have tremendous implications for the city’s asset markets and real economy. “With lower deposit rates, investors will be less likely to place their funds in time deposits. They will be attracted to invest in equities and buy properties which are interest rate-sensitive,” said Billy Mak Sui-choi, associate professor at Hong Kong Baptist University’s Department of Accountancy, Economics and Finance.

“As the local residential property market is expected to be bottoming out, a decrease in HIBOR helps slashing households’ financing cost that can stimulate property purchase, providing sustainable support to the home market,” Mak told China Daily. A lower HIBOR can stimulate retail and consumption activities when lower mortgage rates ease the monthly repayment burden on homeowners which increases their real disposable incomes for spending.

The decline in HIBOR also reduces corporate financing costs and thus provides a favorable financing environment for governments and businesses to make new investments to spur economic growth, Mak added.

In addition to the US interest rate movement, Mak said HIBOR trends also depend on whether there are long-term capital inflows into Hong Kong’s financial system.  

Hong Kong domiciled funds recorded net inflows of $43 billion in the first eight months of this year, while bank deposits increased 10 percent so far this year, reaching over $2.4 trillion, according to Hong Kong government statistics.