Composite Interest Rate : End-March 2006

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

The composite interest rate, which reflects the average cost of funds of banks, increased from 2.94% at the end of February 2006 to 3.00% at the end of March 2006 (see Chart 1 at Annex). This followed a rise of 10 basis points in the composite interest rate in February 2006. The increase of 6 basis points in the composite interest rate in March 2006 reflected upward interest rate adjustments for customer deposits and longer-term interbank funds, while interbank interest rates for funds with maturity of less than one month fell (see Chart 2 at Annex).² For the first quarter of 2006, the composite interest rate increased by 12 basis points, compared with a rise of 25 basis points in the best lending rate and savings deposit rate.³

The mild increase in the average cost of funds of banks in the first quarter of 2006 reflected the fact that liquidity conditions in the Hong Kong dollar market have only tightened moderately during the period.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of March 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 18 May 2006 and will provide the composite interest rate at the end of April 2006.

For further enquiries, please contact:
Hing-fung Wong, Resource Co-ordinator, at 2878 1802 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
21 April 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 8 to 23 basis points, while the rates for funds with maturity less than 1 month fell by 37 to 66 basis points.

³ During the quarter, one bank raised its best lending rate by a total of 50 basis points, while most banks increased their best lending rates by only 25 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 March 2006, 3-month HIBOR was 4.44%, compared with 4.21% at the end of February 2006.