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SCMP Reporter

THE initial phase of liberalising interest rates has shown a significant movement of funds from savings to deregulated time deposits, the Hong Kong Monetary Authority (HKMA) says.

   The increase in time deposits was also part of the larger move by depositors out of the stock and property markets.

  In October last year, when time deposits fixed for more than one month were freed from interest rate rules, savings deposits fell by $6.6 billion, a 2.4 per cent drop.

  By contrast, deregulated time deposits of less than $500,000 surged 31 per cent, up $5.6 billion.

  'It seems that people were switching from savings to time deposits,' said David Carse, deputy chief executive of the HKMA, which has kept a close watch on deposits since deregulation started.

  The HKMA has maintained close contact with individual banks. A sample of 12 banks are required to submit regular reports on the volume of deposits in each type of account.

   Mr Carse warned that the figures had to be interpreted with caution.

  He said that while there had been a shift in deposits in the banking system, repeated interest rate rises throughout 1994 might have contributed to the deposit movements.

  'The overall level of interest rates has gone up during the year, which means the interest on time deposit has risen and is more valuable, and people have become more interest sensitive,' Mr Carse said. The depressed stock and property markets in the second half of the year prompted investors to put money into time deposits, making it difficult to distinguish the effect of deregulation from the other influences on the market.

  Referring to November's figures on bulk time deposits and short-term swap deposits, which were not in direct competition with deregulated time deposits, he said that these two types of deposit recorded a big increase as well.

  'In other words, people were wanting to put their money into interest-bearing investment generally,' Mr Carse said.

  Comparing the short-term swap deposits with the long-term swap deposits, the latter actually fell in November, confirming the theory that deregulated time deposits were substitutes for longer-term swap deposits.

  'This was largely expected because banks price the deregulated time deposits on their swap deposits,' he said.

  The second phase of deregulation which took place in this year reinforced this, he added.

  Interest rates rose roughly 0.6 per cent on deregulated one month time deposits.

  Banks have introduced tiering of interest rates based on the $30,000 level, often the minimum sum for swap deposits.

  Putting the figures on a longer-term basis, it further confirms that people were looking for higher interest investment vehicles.

  From January to November, demand deposits and savings deposits fell by 2.8 per cent and 3.4 per cent respectively.



Investors move funds to deregulated time deposits