Foreign currency reserves at US$152.7 billion
The official foreign currency reserve assets of Hong Kong amounted to US$152.7 billion at the end of December, according to the Hong Kong Monetary Authority (HKMA), up from US$150.4 billion a month earlier.
Including unsettled forward contracts, the foreign currency reserve assets of Hong Kong at the end of December also stood at US$152.7 billion, up from US$150.6 billion at end-November.
Based on the latest published figures, Hong Kong is the world's ninth largest holder of foreign currency reserves, after mainland China, Japan, Russia, India, Taiwan, Korea, Brazil and Singapore.
The total foreign currency reserve assets represent about seven times the currency in circulation or 33% of Hong Kong dollar M3.
Exchange Fund totals US$180.85 billion
The total assets of the Exchange Fund amounted to US$180.85 billion on November 30, 2007, according to the Hong Kong Monetary Authority (HKMA).
The figure was included in the Exchange Fund Abridged Balance Sheet, which is released monthly with the Currency Board Account.
At the end of November 2007, the total assets of the Exchange Fund, at US$180.85 billion, were US$3.14 billion higher than at the end of October 2007. Foreign currency assets rose US$5.11 billion while Hong Kong dollar assets fell US$1.97 billion.
The rise in foreign currency assets was due mainly to valuation gains on foreign currency investments, interest and dividend income from foreign currency assets, purchases of foreign currencies with Hong Kong dollars and an increase in Certificates of Indebtedness. These increases were offset partly by a decrease in securities purchased but settled in the following month.
The decline in Hong Kong dollar assets was due mainly to the sale of Hong Kong dollars for foreign currencies and valuation losses of Hong Kong equities held by the Exchange Fund, which were offset partly by placements received from fiscal reserves and an increase in the balance of the banking system.
The Currency Board Account shows that the monetary base at the end of November 2007 was US$40.38 billion, up 3.8% compared to end-October 2007. The rise was due mainly to increases in the Aggregate Balance, Certificates of Indebtedness and the market value of Exchange Fund Bills and Notes outstanding.
Backing assets grew 4.9%, to US$44.82 billion. The increase was attributable mainly to an increase in the aggregate balance and issuance of Certificates of Indebtedness in the monetary base together with revaluation gains and interest from investments. Reflecting this, the backing ratio rose to 110.98% at end-November 2007 from 109.77% the previous month.
US$4.15 billion surplus recorded in November
The Hong Kong Special Administrative Region Government (HKSARG) had expenditures of US$19.48 billion and revenue of US$25.97 billion in the eight months ending November 30, resulting in a surplus of US$4.15 billion. This brings the cumulative surplus for the 2007-2008 financial year to US$6.48 billion.
A HKSARG spokesman said that the surplus in November was mainly due to the collection of profits tax and proceeds from land sold in October. The government is assessing the revised estimates for the current financial year and will publish them along with the 2008-09 Budget on February 27, 2008.
The territory’s fiscal reserves stood at US$53.83 billion as of November 30.
Stock market cooled in December
 Stock market sentiment became less enthusiastic in December, amidst the tightened global credit market and swelling losses from major international financial institutions. Both the Hang Seng Index and daily turnover retreated further from November’s level, while the performance of newly listed shares varied vastly. Compared with end-2006, the Hang Seng Index at end-2007 recorded an impressive 39.3% increase.
Dollar stabilized against major currencies
 The Hong Kong dollar fell against the U.S. dollar in December, with the exchange rate gradually moving toward HK$7.8/US$1, the mid-point of the convertibility zone. At the same time, the Hong Kong dollar’s effective exchange rate index (EERI) remained stable as the decline in the U.S. dollar came to a halt during December.
Interest rates remained stable
The Hong Kong Interbank Offered Rates (HIBORs) remained range-bound in December, and the negative spread between HIBORs and interest rates for their Eurodollar deposit counterparts also stayed the same. Following the U.S. Federal Reserve’s interest rate cut, local banks also trimmed their Hong Kong dollar prime lending rates and savings deposit rates by 25 basis points.
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