Forex reserves stop 7-month rising streak as central bank sells greenback

Taipei, April 8 (CNA) Taiwan's foreign exchange reserves ended a seven-month rising streak at the end of March as the central bank jumped into the market by selling the U.S. dollar to cap the losses suffered by the Taiwan dollar, according to the bank.

Data compiled by the central bank showed Taiwan's forex reserves at the end of March fell US$1.224 billion from a month earlier to US$548.77 billion, stopping a constant month-on-month increase since July 2021.

Tsai Chiung-min (蔡炯民), head of the bank's Foreign Exchange Department, said that as a result of a stronger U.S. dollar, foreign institutional investors moved about US$12 billion in funds out of Taiwan in March.

That prompted the central bank to enter the market to try to raise the Taiwan dollar supplies by disposing of the U.S. dollar in a bid to boost liquidity in the market, Tsai said.

He emphasized the intervention by the central bank is aimed at maintaining market order and striking a balance between supply and demand.

Analysts said the U.S. dollar index, which traces the value of the greenback against the currencies of the six major trading partners of Washington, trended higher in the wake of a decision made by the United States Federal Reserve to kick off a rate hike cycle in mid-March.

A rising greenback prompted foreign investors to move their funds back home and park them in U.S. dollar-denominated assets, a move which sent ripples through the regional forex market, analysts added.

According to the central bank, with the U.S. dollar index up 0.75 percent in March, the euro fell 0.47 percent against the greenback, the Chinese yuan dropped 0.7 percent, the Taiwan dollar lost 2.05 percent, the British pound depreciated 2.27 percent, and the Japanese yen plunged 5.8 percent.

Bucking the downturn, however, the Australian dollar rose 4.18 percent against the U.S. dollar, and the Canadian dollar gained 2.16 percent in March.

In addition to the central bank's market intervention, Tsai said, the fluctuations in March's forex reserves also reflected the changes in returns from the management of its reserve portfolio.

Tsai added that exchange rate fluctuations of other reserve currencies against the U.S. dollar in the central bank's investment portfolio also contributed to the fall in forex reserves.

Despite a drop in forex reserves at the end of March, the central bank said Taiwan retained the status as the world's fifth largest forex reserves holder after China (US$3.21 trillion at the end of February), Japan (US$1.25 trillion at the end of February), Switzerland (US$1.02 trillion at the end of February), and India (US$550.5 billion as of March 25).

At the end of March, the value of foreign investor asset holdings in Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits fell from US$710.3 billion to US$677.2 billion, the lowest level in more than a year, the central bank said.

Those holdings represented 123 percent of Taiwan's total foreign exchange reserves as of the end of March, down from 129 percent at the end of February, the central bank added.

Tsai said the declines reflected the reduced market capitalization held by foreign institutional investors in the local equity market as well as a fund flight in March.

The central bank has said it would maintain ample forex reserves to ensure that domestic financial markets remain stable, as well as to guard against any sudden withdrawal of funds out of the country by foreign institutional investors.