Announcement of the composite interest rate

The Hong Kong Monetary Authority (HKMA) released a new data series on the composite interest rate today (Thursday).

The new series is being introduced following research which concluded that a composite interest rate reflecting movements in various deposit rates, interbank and other interest rates closely tracked the average cost of funds of authorized institutions over the past six years.

The publication of the composite interest rate is to help improve interest rate risk management in the banking sector. "As the composite interest rate reflects closely the average cost of funds of banks, publishing the rate regularly enables banks to keep track of changes in funding cost," an HKMA spokesperson said. "It also facilitates banks that want to use it for mortgage rate setting to do so."

Since the deregulation of Interest Rate Rules of the Hong Kong Association of Banks in 2001, both depositors and borrowers benefited significantly: depositors are getting more for their deposits and borrowers are paying less for their bank loans. In a free market, it is up to the banks to decide which reference rate to use for mortgage lending.

The composite interest rate will be published quarterly in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The historical data of the composite interest rate from the end of the fourth quarter in 2003 to the end of the third quarter in 2005 are now available in the Bulletin. An article presenting the methodology of its compilation is also posted on the HKMA website.

The next data release is scheduled for mid-February 2006 and will provide the composite interest rate at the end of the fourth quarter of 2005.

For further enquiries, please contact:
Kevin Ip, Manager (Press), at 2878 1687 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
8 December 2005