HKMA Announces Decrease in Composite Interest Rate
Dear Crypto Reader, the Hong Kong Monetary Authority (HKMA) recently disclosed a decline in the composite interest rate for the month ending in May 2024. The composite interest rate, which indicates the average cost of funds for banks, decreased by 4 basis points to 2.61%, compared to 2.65% in April 2024.
Factors Behind the Decrease
Several factors contributed to the reduction in the composite interest rate, with the primary one being a decrease in the weighted funding cost for deposits during the month. The HKMA’s published charts provide a clear breakdown of the interest rate movements, illustrating this change.
Historical Data and Context
The HKMA offers historical data on the composite interest rate from late 2003 to May 2024 in its Monthly Statistical Bulletin, available on their website. This historical data context assists in analyzing long-term trends in bank funding costs in Hong Kong.
Understanding the Composite Interest Rate
The composite interest rate is an average interest rate of all Hong Kong dollar interest-rate-sensitive liabilities, including customer deposits, amounts due to banks, certificates of deposit, and other debt instruments. This rate is calculated using data from retail banks, which represent approximately 90% of total customer deposits in the banking sector.
- It solely represents average interest expenses and does not encompass other loan-making costs like operating expenses, credit expenses, and hedging costs.
Changes in Calculation Methodology
Since June 2019, the composite interest rate and weighted deposit rate have been calculated based on the new local “Interest Rate Risk in the Banking Book” (IRRBB) framework. Consequently, these figures are not directly comparable to previous months’ data.
For more detailed information, you can refer to the official announcement on the HKMA website.
Image source: Shutterstock
Hot Take: Stay Informed About Changes in Composite Interest Rates
Dear Crypto Reader, keeping track of fluctuations in composite interest rates is crucial for understanding the financial landscape in Hong Kong. By staying informed about these changes, you can make informed decisions about banking, investments, and financial planning in the region.
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