Composite Interest Rate : End-February 2006

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the composite interest rate at the end of February 2006.¹

The composite interest rate, which reflects the average cost of funds of banks, increased from 2.84% at the end of January 2006 to 2.94% at the end of February 2006 (see Chart 1 at Annex). This followed a fall of 4 basis points in the composite interest rate in January 2006. The mild increase in the composite interest rate in February 2006 mainly reflected the upward adjustment in interbank interest rates and customer deposit rates during the month (see Chart 2 at Annex).²

"The composite interest rate has been steady in recent months. The mild increase in the average cost of funds of banks in February reflected the increase in interbank interest rates and customer deposit rates, which moved in line with rising US interest rates during the month," 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 February 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 21 April 2006 and will provide the composite interest rate at the end of March 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 March 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 1 month and 12 months rose by 22 to 34 basis points. On average, the interest cost of non-customers' funds, which are comprised of mainly interbank borrowing, was up by 22 basis points.

Annex

Chart 1

^* The composite interest rate and best lending rates are end-of-period figures.

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 February 2006, 3-month HIBOR was 4.21%, compared with 3.93% at the end of January 2006.