Composite Interest Rate : End of July 2007

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the composite interest rate at the end of July 2007¹.

The composite interest rate, which reflects the average cost of funds of banks, fell by 11 basis points to 2.98% at the end of July 2007, from 3.09% at the end of June 2007 (see Chart 1 in the Annex). This followed a rise of 9 basis points in June 2007. During July 2007, interbank rates decreased across-the-board by 9 to 30 basis points, while savings deposit rates were unchanged (see Chart 2 in the Annex). Since US interest rates began increasing in the middle of 2004, the composite interest rate has increased by 274 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 July 2007.

"The 11-basis-point reduction in the average cost of funds in July was mainly attributed to an easing of the previously tight liquidity conditions in the interbank market, following the completion of a series of initial public offerings during the month. However, liquidity conditions appear to have tightened again in the early part of August, partly due to rising volatilities in global financial markets. Looking ahead, the composite interest rate will continue to be influenced 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 July 2007 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 19 September 2007 and will provide the composite interest rate at the end of August 2007.

For further enquiries, please contact:
Peggy Lo, Manager (Press), at 2878 1687 or
Hing-fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
17 August 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.