HKMA Reports Decrease in Composite Interest Rate for May 2024

The Hong Kong Monetary Authority (HKMA) has announced a decrease in the composite interest rate at the end of May 2024. According to the HKMA, the composite interest rate, which serves as a measure of the average cost of funds for banks, fell by 4 basis points to 2.61%, down from 2.65% at the end of April 2024.

Factors Contributing to the Decrease

The primary factor behind the reduction in the composite interest rate was a decrease in the weighted funding cost for deposits during the month. This change is illustrated in the HKMA's published charts, which provide a detailed breakdown of the interest rate movements.

Historical Data and Context

The HKMA has made historical data on the composite interest rate available from the end of the fourth quarter of 2003 to the end of May 2024 in its Monthly Statistical Bulletin, accessible on the HKMA website. This provides context for analyzing long-term trends in the cost of funding for banks in Hong Kong.

Understanding the Composite Interest Rate

The composite interest rate is a weighted average interest rate of all Hong Kong dollar interest-rate-sensitive liabilities. This includes deposits from customers, amounts due to banks, negotiable certificates of deposit, and other debt instruments. Data from retail banks, which account for about 90% of the total customer deposits in the banking sector, are used in the calculation. It is important to note that the composite interest rate represents only average interest expenses and does not cover other costs involved in making loans, such as operating costs, credit costs, and hedging costs.

Changes in Calculation Methodology

Since June 2019, the composite interest rate and the weighted deposit rate have been calculated based on the new local “Interest Rate Risk in the Banking Book” (IRRBB) framework. As a result, these figures are not strictly comparable with those from previous months.

For more detailed information, visit the official announcement on the HKMA website.