Interest rate cuts do not seem to be the potent tool of economic policy they once were. The cheapest money since the early 1960s yielded a yawn from investors who seem to have given up on a recovery prompted by monetary easing. In normal times lower rates cause consumers to increase spending and firms to invest more. Cheap money makes saving less attractive compared to investment in real assets such as property. Funding an SAR mortgage is now considerably cheaper than renting, yet buying interest remains muted. The perilously weak state of the global economy partly explains Hong Kong's weakness. Locally, homeowners' negative equity and the fear that things will get worse before improving means normal levers of control are not working. Hong Kong remains in deflation mode and 'real' interest rates are strongly positive. However, the tangible benefits of lower interest should not be overlooked. Struggling home owners will see monthly bills reduced. The flip side is that savers are receiving a mere 0.25 per cent return on their funds. Major SAR banks responded to the 0.5 percentage point cut in US rates by reducing both their prime lending and deposit rates by 0.25 per cent. Not passing on the full benefit to borrowers represents an effort to defend profit margins which are being squeezed as core rates slip towards zero. That the action seems a co-ordinated response suggests Hong Kong's de-regulated banking market is less competitive than it appears. Any margin squeeze is a relative concept and SAR banks continue to display returns on equity of between 15-25 per cent - levels that would prompt interest by competition regulators in other markets. Most SAR banks simply take deposits and make loans. There are too many of them and a lack of competitive pressure to squeeze margins further means the full benefit of the US rate cut is not being passed to the high street. Cheap money is not a panacea but it would be nice to get the full benefit.