Hong Kong Monetary Authority Reports Decline in Composite Interest Rate for October 2024
The Hong Kong Monetary Authority (HKMA) has reported a decline in the composite interest rate, which fell by 5 basis points to 2.30% at the end of October 2024, from 2.35% at the end of September. This decrease is primarily attributed to a reduction in the weighted funding cost for deposits, according to the HKMA's announcement.
Understanding the Composite Interest Rate
The composite interest rate serves as a key indicator of the average cost of funds for banks in Hong Kong. It is calculated as a weighted average of interest rates on various Hong Kong dollar interest-rate-sensitive liabilities, including customer deposits, amounts due to banks, negotiable certificates of deposit, and other liabilities sensitive to interest rate movements. The data used for this calculation is derived from retail banks, which account for approximately 90% of the total customer deposits within the Hong Kong banking sector.
Change in Weighted Funding Costs
The recent decrease in the composite interest rate reflects a downward trend in the weighted funding cost for deposits. This shift is indicative of changing dynamics in the banking sector’s funding environment, which is crucial for understanding the broader economic landscape in Hong Kong. The HKMA's statistical bulletin, which provides historical data from the end of the fourth quarter of 2003 to the present, offers a comprehensive view of these trends.
Framework Adjustments Affect Comparability
It's important to note that since June 2019, the calculation of the composite interest rate and the weighted deposit rate has been based on the new local “Interest rate risk in the banking book” (IRRBB) framework. This change means that the current figures are not strictly comparable to those of previous months, offering a fresh perspective on the interest rate environment under the updated regulatory framework.
The HKMA continues to monitor the financial landscape closely, providing valuable insights into the cost of funds for banks, which can impact lending rates and economic activity in the region. For further details, the HKMA's Monthly Statistical Bulletin is available on their official website.