$4.56 billion surplus in December
The Hong Kong Special Administrative Region Government (HKSARG) had expenditures of US$21.85 billion and revenue of US$32.91 billion in April – December, resulting in a surplus of US$11.05 billion. A US$4.56 billion surplus was recorded in December.
An HKSARG spokesman said the surplus in December is mainly due to the receipts of salaries tax, profits tax and investment income on fiscal reserves of US$3.53 billion from the Exchange Fund.
The territory's fiscal reserves stood at US$58.39 billion on December 31.
Exchange Fund totals US$181.66 billion
Assets of the Hong Kong Exchange Fund totaled US$181.66 billion on December 31. This is US$807.69 million higher than at end-November, according to the Hong Kong Monetary Authority.
The figure is included in the Exchange Fund Abridged Balance Sheet, which is released monthly with the Currency Board Account. The figures in the Exchange Fund Abridged Balance Sheet and the Currency Board Account are unaudited. The Director of Audit currently is examining the Exchange Fund’s annual accounts.
Foreign currency assets grew US$2.21 billion, while Hong Kong dollar assets shrank US$1.41 billion.
The increase in foreign currency assets is mainly due to 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 partially offset by valuation losses in foreign currency investments and a decrease in repurchase agreements outstanding.
The decline in Hong Kong dollar assets is mainly due to the sale of Hong Kong dollars for foreign currencies and valuation losses in Hong Kong equities held by the Exchange Fund. These were partially offset by placements received from fiscal reserves and an increase in Exchange Fund bills and notes issued but not yet settled.
The Currency Board Account shows the monetary base at end-December was US$41.05 billion, a 1.7% increase from end-November. The rise is mainly due to an increase in Certificates of Indebtedness, reflecting the seasonal demand for bank notes around Christmas and New Year. This was partially offset by a decrease in the market value of Exchange Fund bills and notes outstanding.
Backing assets increased 2.2% to US$45.82 billion. The increase is mainly attributable to the issuance of Certificates of Indebtedness in the monetary base, interest from investments and revaluation gains. Reflecting this, the backing ratio rose to 111.60% at end-December from 110.98% the previous month.
Foreign currency reserves at US$159.9 billion
Hong Kong's foreign currency reserves stood at US$159.9 billion at end-January, according to the Hong Kong Monetary Authority, up from US$152.7 billion a month earlier.
The US$7.2 billion increase in January settled foreign currency assets is mainly due to the purchase of foreign currencies with Hong Kong dollars and an increase in Certificates of Indebtedness, the latter reflecting the seasonal demand for bank notes around the Lunar New Year.
Including unsettled forward contracts, the foreign currency reserve assets of Hong Kong at end-January also stood at US$159.9 billion, compared to US$152.7 billion at end-December.
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 approximately seven times the currency in circulation, or 38% of Hong Kong dollar M3.
Interest rates fall
 The Hong Kong Interbank Offered Rates (HIBORs) trended downward in January, following the decline in U.S. dollar interest rates. With January’s two interest rate cuts from the U.S. Federal Reserve totaling 125 basis points, local banks lowered their Hong Kong dollar prime lending rates and savings deposit rates by a lesser extent of 100 basis points; savings deposit rates at local banks have been slashed to below 1%.
Hong Kong dollar depreciates further
 The Hong Kong dollar remained relatively unchanged against the U.S. dollar in January, with the exchange rate generally hovering around HK$7.80: US$1, the midpoint of the Convertibility Zone. The Hong Kong dollar effective exchange rate index depreciated further given the continued weakness of the U.S. dollar in the period. A weaker Hong Kong dollar will remain a favorable factor to the external competitiveness of the economy.
Volatility in the stock market persists in January
 With more announcements of losses from international financial institutions, the stock market endured another month of consolidation and volatility, alongside the slide in other major markets overseas. The Hang Seng Index fell below 22,000 before recovering notably due to bargain-hunting investors, while turnover rebounded from late-December’s lower levels.
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