The fall ended two consecutive months of sequential gains, as the US dollar rose and eroded the value of other reserve currencies, the central bank said
By Crystal Hsu /
Taiwan’s foreign exchange reserves last month fell by US$1.06 billion to US$569.54 billion from the previous month, ending two straight months of sequential gains, as the US dollar rose and eroded the value of other reserve currencies, the central bank said yesterday.
In addition, the central bank intervened in the local market last month to shore up the local currency, which weighed on overall foreign exchange reserves, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said during a news conference in Taipei.
It is not uncommon for the central bank to step in when it sees it necessary to slow excessive fund flows and stabilize the foreign exchange market, Tsai said.
Global funds late last month bought greenback-denominated assets on the expectation that the US Federal Reserve would keep interest rates at high levels, rather than start to lower interest rates as early as next month, Tsai said.
As a result, the US dollar index grew 1.94 percent, while the Japanese yen lost 4.23 percent, the Chinese yuan weakened 1.24 percent and the New Taiwan dollar softened 1.64 percent, he said.
The market is now looking at the Fed’s interest rate cuts beginning in May at the earliest, Tsai said.
The view gained force after recent US GDP and employment data turned out stronger than expected and Fed Chairman Jerome Powell last week called for patience with high interest rates following a rate-setting Federal Open Market Committee meeting, he said.
Though the Financial Supervisory Commission saw fund inflows of more than US$3 billion to the local bourse last month, marking the third consecutive month of net fund inflows, the central bank observed foreign funds wiring profits of a similar size abroad, suggesting a balance in supply and demand, Tsai said.
Tsai linked the foreign fund outflow to a cash dividend distribution on the part of Taiwan Semiconductor Manufacturing Co (台積電), the world’s largest contract chipmaker.
Foreign portfolio managers repeatedly cut and raised holdings in local shares last month and so far this month, in keeping with their ever-changing views on the Fed’s policy intentions, he said.
Despite the retreat in foreign exchange reserves last month, Taiwan holds the world’s fourth-largest foreign exchange reserves after China, Japan and Switzerland, Tsai said.
The central bank would maintain ample foreign exchange reserves to ensure stability in local financial markets and guard against any sudden fund outflows by foreign investors, he added.
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