Composite Interest Rate : End-July 2006

The Hong Kong Monetary Authority (HKMA) announced today (Thursday) the composite interest rate at the end of July 2006¹.

The composite interest rate, which reflects the average cost of funds of banks, declined by 5 basis points in July 2006, from 3.16% at the end of June 2006 to 3.11% at the end of July 2006 (see Charts 1 and 2 in the Annex). This followed a fall of 23 basis points in the composite interest rate in June 2006. The decline of the average cost of funds in July was primarily attributable to the fall in customers' time deposit and interbank rates, reflecting the ample liquidity in the banking system. During the month, savings deposit rates of banks were unchanged, but average time deposit rates fell moderately² and HIBORs dropped by 24 to 32 basis points for funds with maturity of overnight to 12 months.

Since the commencement of the current up-cycle of US interest rates from the middle of 2004, the composite interest rate has increased by 287 basis points, compared with the upward adjustments of between 300 basis points and 325 basis points of the best lending rates of banks.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of July 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 19 September 2006 and will provide the composite interest rate at the end of August 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
17 August 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 July, quoted time deposit rates of eight selected major banks were virtually unchanged for deposits with maturity of 7 days to 3 months, while those with maturity over 3 months dropped by some 4 basis points. Note that the actual time deposit rates offered to customers by banks may differ from the quoted rates.

Annex

Chart 1

^*End-of-period figures.

Chart 2

^*End-of-period figures.