Composite Interest Rate : End of June 2007

The Hong Kong Monetary Authority (HKMA) announced today (Thursday) the composite interest rate at the end of June 2007.¹

The composite interest rate, which reflects the average cost of funds of banks, rose by 9 basis points to 3.09% at the end of June 2007, from 3.00% at the end of May 2007 (see Chart 1 in the Annex). This followed a rise of 4 basis points in May 2007. During June 2007, short-term interbank rates increased, while longer term interbank rates fell and savings deposit rates were unchanged (see Chart 2 in the Annex). ² Since US interest rates began increasing in the middle of 2004, the composite interest rate has increased by 285 basis points, compared with upward adjustments of between 275 basis points and 300 basis points in the best lending rates of banks by the end of June 2007.

"The 9 basis-point increase in the average cost of funds in June was mainly attributed to the temporary tightening of short-term liquidity conditions in the interbank market, which was brought about by a series of initial public offerings near the end of the month. It is expected that the composite interest rate will continue to be affected by short-term changes in liquidity conditions," 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 2007 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 17 August 2007 and will provide the composite interest rate at the end of July 2007.

For further enquiries, please contact:
Thomas Chan, Senior Manager (Press), at 2878 1480 or
Peggy Lo, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
19 July 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.

² During June 2007, the overnight HIBOR increased by 10 basis points while HIBORs for funds with maturity of one week and more decreased by 9 to 23 basis points. On a monthly average basis, HIBORs fell for funds with maturity of one month or less by 7 to 32 basis points, while those for funds with maturity over one month rose by 4 to 24 basis points.

Annex

Chart 1

^*End-of-period figures.

Chart 2

^*End-of-period figures.