Composite Interest Rate : End of September 2007

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

The composite interest rate, which reflects the average cost of funds of banks, rose by 26 basis points to 3.34% at the end of September 2007, from 3.08% at the end of August 2007 (see Chart 1 in the Annex). This followed an increase of 10 basis points in August 2007. The rise in the composite interest rate in September 2007 was largely due to the upward adjustment in interbank interest rates by 9 to 108 basis points. The rise in interbank rates reflected tight liquidity conditions throughout the month due to a string of initial public offerings, which tied up a substantial amount of short-term funds (see Chart 2 in the Annex)². Looking ahead, the composite interest rate will continue to be influenced by short-term changes in liquidity conditions.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of September 2007 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 19 November 2007 and will provide the composite interest rate at the end of October 2007.

For further enquiries, please contact:
Thomas Chan, Senior Manager (Press), at 2878 1480 or
Hing-fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
18 October 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 On the other hand, local banks lowered their best lending rates by 25 basis points and cut their savings deposit rates as well on 20 September, following a 50-basis-point reduction in the Federal funds target rate in the US on 18 September.

Annex

Chart 1

^*End-of-period figures.

Chart 2

^*End-of-period figures.