Taipei, Jan. 6 (CNA) Taiwan's foreign exchange reserves hit a new high at the end of December in part because of central bank intervention in the local foreign exchange market to limit the Taiwan dollar's appreciation, the bank said Monday.
An increase in returns on the central bank's investment portfolio and the gains made against the greenback by other foreign currencies in the bank's investment portfolio also contributed to the new high, the bank said.
Taiwan's foreign exchange reserves totaled US$478.13 billion at the end of December, up US$4.08 billion from a month earlier.
Harry Yen (顏輝煌), head of the bank's Foreign Exchange Department, said that as foreign institutional investors pumped large amounts of funds into the forex market, the U.S. dollar faced heavy downward pressure and the Taiwan dollar appreciated sharply.
As a result, Yen said, the local forex market turned volatile, and the central bank had to step in and buy U.S. dollars as a stabilizing force.
In December alone, even with the presence of the central bank, the Taiwan dollar rose 1.33 percent against the U.S. dollar.
In the last trading session of the month, the U.S. dollar fell below the NT$30 level at one point before the central bank intervened to limit the greenback's losses and bring the currency back above that level to close at NT$30.106.
The central bank has always respected free markets, Yen said, but it will step in to maintain order if a market is interrupted by sudden and large foreign fund inflows.
Yen reiterated that the central bank does not set a target level for the Taiwan dollar against the U.S. dollar, but many in the market believe the bank wants to keep the U.S. dollar above the NT$30 level. On Monday, the U.S. dollar rose at NT$0.005 to close at NT$30.110.
The bank said, meanwhile, that the holdings of Taiwanese stocks, bonds and Taiwan dollar-denominated deposits by foreign investors totaled US$455 billion at the end of December, equal to about 95 percent of Taiwan's foreign exchange reserves.
That was up 6 percentage points from the end of November, but the bank said it remained committed to maintaining ample forex reserves to keep financial markets at home secure even if foreign institutional investors suddenly move large amounts of funds out of the country.