Taiwan's forex reserves fall further in September on market intervention

10/08/2022 08:32 PM
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CNA file photo
CNA file photo

Taipei, Oct. 8 (CNA) Taiwan's foreign exchange reserves fell further in September as the local central bank continued its efforts to cap a fall in the Taiwan dollar against the U.S. dollar amid an aggressive rate hike cycle by the Federal Reserve, according to the bank.

Data compiled by the central bank showed the country's forex reserves as of the end of September stood at US$541.11 billion, down by about US$4.38 billion from a month earlier, marking the steepest month-on-month decline in nearly 12 years.

The September figure was the lowest since April 2021, when Taiwan's forex reserves also reached NT$541.11 billion.

Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, said although the central bank enjoyed a return from the portfolio management of forex reserves in September, the month's figure still fell from August, marking the third consecutive month of decline after the bank's intervention in the local forex market through making purchases of Taiwan dollars.

Tsai said as the Fed had acted aggressively to carry out its rate hike cycle which pushed up the U.S. dollar, sending ripples through the global financial markets, the local central bank had to enter the market to smooth the local currency's volatility and maintain market order.

However, Tsai did not disclose how much the market intervention cost the central bank in September.

In September, the Taiwan dollar tumbled by NT$1.308 or 4.3 percent against the U.S. dollar and without the central bank's intervention, would have fallen further.

Since March, when the Fed launched a rate hike cycle to fight inflation, the American central bank has raised its key interest rates by 300 basis points, while the local central bank increased rates by only 50 basis points, saying Taiwan was not faced with as fast-growing inflation as the U.S. was.

With a widening interest rate gap between the U.S. and Taiwan markets, foreign institutional investors have rushed to move their funds out of the local market for U.S. dollar-denominated assets, adding to downward pressure on the Taiwan dollar.

Taiwan was not an isolated case in experiencing a fall in its forex reserves. According to international news media, Singapore's forex reserves fell by US$3.3 billion in September, Switzerland's dropped by US$7.91 billion, and Japan's even plunged by US$54 billion as their central banks also jumped into the trading floor to shore up their respective currencies against a strong greenback.

As the market is widely anticipating the Fed will continue its hawkish stance which could lead to further turmoil in the global markets, Tsai said he had faith the central bank would be able to fend off the market volatility.

As of the end of September, the value of foreign investors' asset holdings of Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits had dropped by US$91.2 billion from a month earlier to US$436.9 billion, a new low since July 2020, the central bank said.

Those holdings represented 81 percent of Taiwan's total foreign exchange reserves, down sharply from 97 percent at the end of August, the central bank added.

Tsai said the declines reflected a plunge in local share prices in September, when the Taiex, the benchmark weighted index on the Taiwan Stock Exchange, shed 1,679.86 points or 11.07 percent due to foreign institutional sell-offs.

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

(By Pan Tzu-yu and Frances Huang)

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