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Following is a question by the Hon Dr Law Cheung-kwok and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Provisional Legislative Council today (Tuesday):

Question:

The interbank interest rates in Hong Kong have eased lately, but the Hong Kong Association of Banks (HKAB) decided to slightly lower the prime rate only on 27 March 1998. In this connection, will the Government inform this Council:

(a) whether it is aware of the reasons why, before that date, the HKAB had not lowered the prime rate;

(b) whether it has studied if it was appropriate for the HKAB to have decided not to lower the prime rate before that date; if so, what the results are; and

(c) of the objective conditions for determining and adjusting the prime rate?

Reply:

Madam President,

(a) & (b) The prime rates are set by individual banks themselves. The Hong Kong Association of Banks (HKAB) does not determine the prime rates. According to the Interest Rate Rules, HKAB only prescribes the maximum interest rates for deposits with maturity below 7 days.

(c) In determining the prime rates, banks will normally have regard to, among other things, their cost of funds taking into account the outlook for the change thereof. Recently, although the interbank interest rates have softened, there is continuing active competition for customer deposits which has kept the corresponding interest rates offered relatively high. Despite this, banks have recently lowered their minimum lending rates by 25 basis points.

End/Tuesday, April 7, 1998

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