Composite Interest Rate : End-June 2006

Press Releases

19 Jul 2006

Composite Interest Rate : End-June 2006

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

The composite interest rate, which reflects the average cost of funds of banks, declined to 3.16% at the end of June 2006, from 3.39% at the end of May 2006 (see Chart 1 in the Annex). This followed a rise of 29 basis points in the composite interest rate in May 2006. The decline of 23 basis points in the composite interest rate in June 2006 reflected the fall in customers' time deposits and short-term interbank rates during the month, after the completion of the Initial Public Offering (IPO) of Bank of China. The IPO had caused a temporary tightening in short-term interbank liquidity in the latter part of May (see Chart 2 in the Annex).2,3 For instance, the overnight interbank rate dropped to 3.99% at the end of June 2006, having risen to 4.77% at the end of May, from 4.36% at the end of April.

"The decline of the average cost of funds reflected largely the easing back to their pre-IPO levels of interest rates for customers' time deposits and short-term interbank funds. Since the commencement of the current up-cycle of US interest rates from the middle of 2004, the composite interest rate has increased by 292 basis points, compared with the upward adjustments of between 300 basis points and 325 basis points of the best lending rates of banks," 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 June 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 17 August 2006 and will provide the composite interest rate at the end of July 2006.

For further enquiries, please contact:
Sara Yip, Manager (Press), at 2878 8246 or
Hing-Fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
19 July 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 dropped for funds with maturity of overnight to 3 months by 5 to 77 basis points, while that for funds with maturity over 3 months increased by 7 to 16 basis points.

3. The IPO period for Bank of China was between 18 May and 23 May with the refund date on 1 June.

Annex

Chart 1

Chart 1
*End-of-period figures.

Chart 2

Chart 2
*End-of-period figures.

Latest Press Releases
Last revision date : 19 July 2006