Composite Interest Rate : End-December 2005 and End-January 2006

Press Releases

17 Feb 2006

Composite Interest Rate : End-December 2005 and End-January 2006

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the composite interest rate at the end of December 2005 and the end of January 2006.1

The composite interest rate, which reflects the average cost of funds of banks, increased from 2.33% at the end of September 2005 to 2.88% at the end of December 2005, before edging down to 2.84% at the end of January 2006 (see Chart 1 at Annex). The 55 basis points rise in the composite rate at the end of December 2005 was primarily due to the increase in deposit rates. Saving deposit rate (which moved largely in tandem with the best lending rate) rose by 75 basis points during the last quarter in 2005. Interbank interest rates rose only modestly during the period2. As deposit rates remained steady in January 2006, the mild decline in the composite interest rate towards the end of January 2006 mainly reflected a downward adjustment in interbank interest rates during the month (see Chart 2 at Annex).

"The recent movement of the composite interest rate in particular the mild decline in the end-January figure shows that the rate reflects the average cost of funds of banks and the easing liquidity condition in the Hong Kong dollar market," said Mr Peter Pang, Deputy Chief Executive of the HKMA.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of January 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). Starting from February 2006, the composite interest rate will be announced on a monthly basis. The next data release is scheduled for 17 March 2006 and will provide the composite interest rate at the end of February 2006.

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
17 February 2006

1 The composite interest rate is a weighted average interest rate of all Hong Kong dollar interest bearing liabilities, which include deposits from customers, amounts due to banks, negotiable certificates of deposit and other debt instruments, and Hong Kong dollar non-interest bearing demand deposits on the books of banks. Data from retail banks, which account for about 90% of the total customers' deposits in the banking sector, are used in the calculation. It should be noted that the composite interest rate represents only average interest expenses. There are various other costs involved in the making of a loan, such as operating costs (e.g. staff and rental expenses), credit cost and hedging cost, which are not covered by the composite interest rate.

2 During the period, HIBORs for funds with maturity between 3 months to 12 months rose by 2 to 14 basis points, while 1-month HIBOR dropped by 8 basis points. On average, the interest cost of non-customers' funds, which are comprised of mainly interbank borrowing, was up by only 15 basis points.

Annex

Chart 1

Chart 1
The composite interest rate and best lending rates are end-of-period figures.

Chart 2

Chart 2
The composite interest rate and weighted deposit rate are end-of-period figures, while 3-month HIBOR is the average over the corresponding period based on its daily figures. At the end of January 2006, 3-month HIBOR was 3.93%, compared with 4.23% at the end of December 2005.

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Last revision date : 17 February 2006