Composite Interest Rate : End of December 2006

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

The composite interest rate, which reflects the average cost of funds of banks, declined to 2.86% at the end of December 2006, from 3.02% at the end of November 2006 (see Chart 1 in the Annex). This followed a decline of one basis point in November 2006. The 16 basis-point reduction in the average cost of funds in December reflected the general decline of interbank rates following the completion of a number of initial public offerings near the end of November 2006. During December 2006, HIBORs declined for funds with maturity of three months or less by 10 to 78 basis points, while those for funds with maturity over three months also declined by 10 to 17 basis points (see Chart 2 in the Annex).

Since US interest rates began increasing in the middle of 2004, the composite interest rate has increased by 262 basis points, compared with the upward adjustments of between 275 basis points and 300 basis points in the best lending rates of banks by end-December 2006.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of December 2006 are available in the Monthly Statistical Bulletin on the HKMA website (http://www.hkma.gov.hk). The next data release is scheduled for 21 February 2007 and will provide the composite interest rate at the end of January 2007.

For further enquiries, please contact:
Ying-ying Cheng, Manager (Press), at 2878 1687 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
18 January 2007

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.

Annex

Chart 1

^*End-of-period figures.

Chart 2

^*End-of-period figures.