Taiwan's forex reserves end 2-month rising streak on market intervention

Taipei, Feb. 6 (CNA) Taiwan's foreign exchange reserves at the end of January moved lower from a month earlier, breaking a two-month rising streak after the local central bank stepped in to prevent the Taiwan dollar from falling further against the U.S. dollar, according to the Central Bank of the Republic of China (Taiwan).

Data compiled by the central bank showed on Monday that the country's forex reserves, as of the end of January, fell about US$1.06 billion from a month earlier to US$569.54 billion.

In a statement, the central bank said it entered the market to buy Taiwan dollars and sell U.S. dollars in a bid to "smooth out volatile capital flows to maintain an orderly foreign exchange market."

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, said although the central bank saw an increase in returns from its portfolio management in January, intervening in the market to dump the greenback offset the gains from its investments.

The U.S. dollar reversed its weakness in January as the Federal Reserve made hawkish remarks on monetary policy, dampening market hopes that it would kick off a rate cut cycle as early as March, in the wake of the release of a slew of solid economic data, Tsai said.

"Market anticipation of a rate cut by the Fed in March has dipped to almost zero," he added.

In addition, Tsai said a recent vote by the U.K. Monetary Policy Committee yielded mixed results, indicating there are uncertainties as to how many of the major central banks in the world plan to adjust their monetary policies.

Amid reduced hopes of a rate cut by the Fed in March, the U.S. dollar index, which tracks the value of the greenback against the currencies of Washington's six major trading partners moved higher by 1.94 percent in January.

In the month, the American currency rose 1.64 percent against the Taiwan dollar, while increasing 4.23 percent, 3.92 percent and 2.23 percent, respectively, against the Japanese yen, Australian dollar and the euro.

Due to the stronger U.S. dollar, when the central bank converted its non-greenback denominated assets into U.S. dollars, the value of forex reserves fell further in January, Tsai said.

Forex reserves in other countries in the region also moved lower from a month earlier, with South Korea and India seeing their figures fall US$4.1 billion and US$5.5 billion, respectively, Tsai added.

The central bank is scheduled to release details of its 2023 market intervention in a report due in March, he said.

Looking ahead, the U.S. dollar could maintain its strength as the U.S. economy remains resilient with a strong job market and solid corporate earnings despite the recent aggressive rate hike cycle, Tsai added.

However, when the market reaches a consensus on how the Fed will adjust monetary policy, volatility in the global financial markets could be reduced, he said.

Meanwhile, central bank data shows the value of foreign investors' holdings of Taiwan-listed stocks and bonds, and Taiwan dollar-denominated deposits fell to US$634.4 billion at the end of January, down from US$640.8 billion at the end of December.

Those holdings represented 111 percent of Taiwan's total foreign exchange reserves as of the end of January, down from 112 percent at the end of December, the data indicated.

Despite the fall in forex reserves in January, Taiwan still had the fourth largest forex reserves in the world after China with US$3.24 trillion, Japan US$1.16 trillion and Switzerland US$780.5 billion at the end of December. India took fifth place with US$546.1 billion in forex reserves as of Jan. 26.

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