Short-term quick fund flows affect forex market: central bank head

07/12/2019 08:48 PM
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 Central Bank Governor Yang Chin-long
Central Bank Governor Yang Chin-long

Taipei, July 12 (CNA) Central Bank Governor Yang Chin-long (楊金龍) said Friday that short-term movement of foreign funds has affected the local foreign exchange market and posed a challenge to the bank's foreign exchange stability.

Addressing a meeting held by the Chinese National Association of Industry and Commerce (CNAIC), Yang said recent swift fund inflows and outflows in the local market have created volatile fluctuations for the Taiwan dollar in recent months.

Yang said the central bank will continue its efforts to manage the floating value of the Taiwan dollar by using its resources and through careful assessment of its monetary policy, in a bid to smooth the volatility in the local forex market and maintain market order.

Yang made the comments after a recent rare revelation by the central bank that it stepped into the local forex market in May and June, when the Taiwan dollar encountered a big swing in the wake of swift foreign fund flows.

In May, the central bank assigned part of the country's forex reserves to buy into the Taiwan dollar -- which fell 2.24 percent against the U.S. dollar that month -- to bolster the local currency amid foreign fund outflows due to increasing concerns over the trade friction between China and the United States.

It then used part of the forex reserves to buy into the U.S. dollar in June to keep the Taiwan dollar lower, when eased concerns over global trade issues encouraged foreign fund inflows into Taiwan, to prop up the greenback, which fell 1.71 percent against its local counterpart in the month.

In addition to the intervention in the local forex market, Yang said, the central bank has built a well-functioning system to tally and analyze trading statistics in the local forex market to put short-term, mid-term and long-term fund flows under close watch.

In addition, Yang said that at a time of rapidly evolving financial technology, fast development in cryptocurrencies and rising popularity in digital payment systems, which are expected to impact the traditional business of domestic banks, the central bank has set up a task force to study these developments. Yang added that the central bank is tightening its supervision of mobile payments to ensure a stable local financial market.

Commenting on the current low interest rates in the global markets, Yang said there is limited room for central banks around the world to further loosen their monetary polices to stimulate the economy, although the world's economy is slowing down.

The central bank left its key interest rates unchanged for the 10th consecutive quarter in its quarterly policymaking meeting in June, with the discount rate at 1.735 percent.

Citing weakening global demand, the Directorate General of Budget, Accounting and Statistics in May lowered its forecast for Taiwan's 2019 gross domestic product (GDP) growth by 0.08 percentage points to 2.19 percent.

However, Yang urged the local business sector to increase wages for employees in an appropriate manner, which is expected to bolster domestic demand, while higher compensation is expected to encourage employees to work harder, which in turn is expected to boost productivity.

He said such wage hikes would benefit the local economy as a whole.

(By Pan Tzu-yu and Frances Huang)


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