An immediate cut in interest rates is unlikely, as rates have been reduced three times in the past two months, according to the Hong Kong Association of Banks (HKAB). Interest rates had fallen sharply in a short period, HKAB chairman Mervyn Davies said, and bankers wanted to see what the New Year would bring before deciding on further cuts. 'I think we want to see what happens internationally and we want to see whether interbank rates stay calm,' Mr Davies said. ABN Amro said banks' funding costs had fallen more slowly than the Hong Kong Interbank Offered Rate (Hibor) because some high-cost deposits remained on the balance sheet. This had made them reluctant to cut prime rates. 'These deposits have gradually matured and the adjustment has almost come to an end,' ABN Amro said. The prime-funding cost spread widened from just 61 basis points in October to 230 points in November and will grow further to 336 points in December, assuming an average 6 per cent three-month Hibor this month. Even if banks aim at maintaining a 300 basis point prime-Hibor spread, higher than the 10-year average 244 basis points before the crisis, the prime rate would still fall a further 125 basis points to 8.25 per cent by the middle of next year, ABN Amro said. The HKAB cut deposit interest rates 25 basis points on Friday to 4.5 per cent, two weeks after cutting rates to 4.75 per cent. The trend began on October 16 when rates were cut to 5 per cent from 5.25 per cent following a United States Federal Reserve rates reduction. Banks have cut their best lending rates in line with the easing of deposit rates, with prime for most leading banks now 9.25 per cent. The three-month Hibor fell slightly to 5.86 per cent yesterday.