Forex reserves hit new high at end of August on central bank intervention

Taipei, Sept. 7 (CNA) Taiwan's foreign exchange reserves at the end of August hit a new high of US$579.058 billion as the local central bank jumped into the forex market to keep the U.S. dollar from falling further against the Taiwan dollar, according to the bank.

In addition, an increase in returns from the central bank's management of its portfolio also boosted the forex reserves in the month, while the strength of other non-greenback currencies pushed up the forex reserves further when the assets denominated by these currencies were converted into the U.S. dollar, the bank said.

Data released by the central bank Thursday showed Taiwan's forex reserves rose sharply by US$7.318 billion from a month earlier to a record high of US$579.058 billion as of the end of August, reversing a fall of US$1.559 billion seen at the end of July.

Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, told reporters that the weakness of the U.S. dollar in August pushed the local forex market off a demand-to-supply balance in some trading sessions of the month.

Subsequently, the central bank "stepped in to smooth out volatile capital flows to maintain an orderly foreign exchange market" by buying the American unit and selling the local currency to shore up the greenback, Tsai said.

In August, the U.S. dollar index, which tracks the value of the greenback to the currencies of Washington's six major trading partners, fell by 2.3 percent as hopes about a rate cut by the U.S. Federal Reserve in September were raised by Fed Chair Jerome Powell's much-awaited speech on Aug. 23 at the annual economic policy symposium in Jackson Hole, Wyoming.

"The time has come for policy to adjust," Powell said, strongly indicating the Fed will lower its key interest rates in the next policymaking meeting scheduled for Sept. 17-18.

The Taiwan dollar soared NT$0.896 or 2.82 percent against the U.S. dollar in August, while the Japanese yen, the Australian dollar, the Canadian dollar, the pound sterling, the euro and the Chinese yuan also surged 6.13 percent, 4.77 percent, 2.66 percent, 2.51 percent, 2.33 percent and 2.32 percent, respectively.

Tsai said as the U.S. economy showed signs of slowing, the market widely expects the Fed to cut interest rates by 25 basis points in September.

Commenting on an increase in returns from the central bank's management of the forex reserves, Tsai said August was one of the months in a year for the central bank to receive a large return to raise forex reserves. Other months for a large return are February, May and November.

Meanwhile, central bank data showed that the value of foreign investors' holdings of Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits rose to US$811.3 billion at the end of August from US$783.90 billion at the end of July.

Those holdings represented 140 percent of Taiwan's total foreign exchange reserves as of the end of August, up 3 percentage points from the end of July.

According to the Financial Supervisory Commission (FSC), foreign institutional investors recorded a net fund inflow of US$1.417 billion in August, and the accumulated new fund inflow by foreign institutional investors hit US$27.992 billion in the first eight months of this year.

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.