Composite Interest Rate : End-August 2006

Press Releases

19 Sep 2006

Composite Interest Rate : End-August 2006

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

The composite interest rate, which reflects the average cost of funds of banks, declined by 6 basis points in August 2006, from 3.11% at the end of July 2006 to 3.05% at the end of August 2006 (see Charts 1 and 2 in the Annex). This followed a fall of 5 basis points in the composite interest rate in July 2006. The decline of the average cost of funds in August was attributable to the fall of customers' time deposit and interbank rates2.

Since the commencement of the current up-cycle of US interest rates from the middle of 2004, the composite interest rate has increased by 281 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 August 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 19 October 2006 and will provide the composite interest rate at the end of September 2006.

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

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 August, one bank lowered its best lending rate by 25 basis points and its savings deposit rate was also reduced from a maximum of 3% p.a. to 2.75% p.a. On the other hand, all other banks kept their rates unchanged. Quoted time deposit rates of eight selected major banks were steady for deposits with maturity of 1 month and over, while that for deposits with maturity of 7 days dropped by some 3 basis points. Note that the actual time deposit rates offered to customers by banks may differ from the quoted rates. Meanwhile, on a month-end to month-end basis, HIBORs for funds with maturity of 3 months and over dropped by 3 to 20 basis points, while that for funds with maturity less than 3 months increased by 7 to 22 basis points. On a month-average basis, HIBORs for funds of all maturities dropped by 13 to 31 basis points.

Hong Kong Monetary Authority
19 September 2006

Annex

Chart 1

Chart 1
*End-of-period figures.

Chart 2

Chart 2
*The composite interest rate and weighted deposit rate are end-of-period figures, while overnight and 3-month HIBORs are the averages of their daily figures for the corresponding periods. At the end of August 2006, overnight and 3-month HIBORs were 3.77% and 4.28% respectively, compared with 3.70% and 4.30% at the end of July 2006.

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Last revision date : 19 September 2006