HKMA Announces Decrease in Composite Interest Rate for July 2024
The Hong Kong Monetary Authority (HKMA) recently reported a decrease in the composite interest rate to 2.58% at the end of July 2024, down from 2.62% in June 2024. This announcement sheds light on the evolving financial landscape in Hong Kong.
Understanding the Composite Interest Rate
The composite interest rate serves as a critical metric for evaluating the average cost of funds for banks. It is calculated as a weighted average interest rate of all Hong Kong dollar interest-rate-sensitive liabilities, encompassing various financial instruments such as customer deposits and debt instruments.
Factors Behind the Decrease
The 4 basis point decline in the composite interest rate can be primarily attributed to a reduction in the weighted funding cost for deposits during the month. Charts provided by the HKMA offer a visual representation of these changes, highlighting the intricate dynamics of the banking sector.
Enhanced Calculation Methodology
Since June 2019, the calculation of the composite interest rate and weighted deposit rate has been based on the new local “Interest rate risk in the banking book” (IRRBB) framework. This updated methodology aims to provide a more comprehensive assessment of interest rate risks within the banking sector, offering stakeholders a clearer perspective on market dynamics.
Implications and Insights
The HKMA’s decision to decrease the composite interest rate for July 2024 underscores the ongoing adjustments in the cost of funds for banks. This development reflects the broader monetary environment in Hong Kong and serves as a valuable indicator of financial trends in the region.
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