HKMA Reports Decrease in Composite Interest Rate for September 2024
Jessie A Ellis Oct 21, 2024 04:36
The Hong Kong Monetary Authority announced a 17 basis points drop in the composite interest rate to 2.35% at the end of September 2024, reflecting lower deposit funding costs.
The Hong Kong Monetary Authority (HKMA) has announced a notable decrease in the composite interest rate, which fell by 17 basis points to 2.35% at the end of September 2024. This marks a decline from the 2.52% recorded at the end of August 2024, according to the HKMA's latest release.
Understanding the Composite Interest Rate
The composite interest rate serves as a gauge for the average cost of funds for banks in Hong Kong. It is calculated as a weighted average of interest rates on all Hong Kong dollar interest-rate-sensitive liabilities. These include customer deposits, amounts due to banks, negotiable certificates of deposit, and other debt instruments. The rate also considers non-interest-bearing demand deposits sensitive to interest rate shifts.
The decrease observed in September is primarily attributed to a reduction in the weighted funding cost for deposits. This reflects changes in the broader economic environment and the specific dynamics of the banking sector in Hong Kong.
Historical Context and Recent Changes
Historical data stretching back to the fourth quarter of 2003 is available through the HKMA's Monthly Statistical Bulletin, providing insights into long-term trends in interest rates. It is important to note that since June 2019, the calculation of the composite interest rate and the weighted deposit rate has been aligned with the new local "Interest rate risk in the banking book" (IRRBB) framework. This update means current figures might not be directly comparable with those from previous periods.
Retail banks, which account for approximately 90% of the total customer deposits in the banking sector, contribute significantly to the calculation of this rate. While the composite interest rate captures average interest expenses, it does not encompass other costs associated with loan origination, such as operational, credit, and hedging costs.
For further details on the composite interest rate and related financial statistics, interested parties can visit the HKMA website.
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