The composite interest rate rose from 1.58% at end-June to 2.33% at end-September, the Monetary Authority says.

Releasing the figure for the first time, the authority said today the rate reflects movements in various deposit rates, interbank and other interest rates closely tracked the average cost of funds of authorised institutions over the past six years.

The release of the data can help improve interest rate risk management in the banking sector, enable banks to keep track of changes in funding cost, and facilitate banks that want to use it for mortgage rate setting to do so.

Reference interest rate

In his Viewpoint column published today on the authority's website, authority chief executive Joseph Yam said even though banks have decided not to adopt the composite rate, customers can always ask their banks to price their lending by reference to the composite rate.

"There is the base rate that we publish, on the basis of which we provide liquidity to banks through the Discount Window, which is quite stable. There is of course the inter-bank offered rate for funds of different maturity, which can be quite volatile.

"And there is our suggestion of a composite rate reflecting the average cost of funds of the banks in Hong Kong. We recognise that funding structures differ among banks, but that did not stop them from using the same best lending rate for a long time."

In a free market it is up to the banks to determine their own interest rates, as long as the interest rates are clearly conveyed to customers, Mr Yam said.