Forex reserves fall due to central bank intervention

Taipei, Oct. 4 (CNA) Taiwan's foreign exchange reserves at the end of September fell from a month earlier as the local central bank intervened in the forex market in a bid to mitigate volatility by supporting the Taiwan dollar against the U.S. dollar during the month, the central bank said Friday.

In addition to market intervention, an increase in returns from the management of the bank's portfolio of forex reserves also offset the impact of its market intervention, the central bank said,

Data compiled by the bank showed that as of the end of September local forex reserves fell US$1.129 billion from a month earlier to US$577.929 billion.

As a result, India replaced Taiwan as the country with the fourth largest forex reserves by holding US$605.7 billion. China remained No. 1 with US$3.29 trillion in forex reserves, ahead of Japan (US$1.08 trillion) and Switzerland (US$816.7 billion), according to the central bank.

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, said while the Taiwan dollar moved higher against the U.S. dollar in September as a whole, the local currency came under heavy downward pressure in two to three trading sessions that month.

During those two to three sessions, the central bank stepped into the market to prevent the Taiwan dollar from falling further by selling a large amount of U.S. dollars on the market, which paved the way for the fall in the month's forex reserves, Tsai said.

According to Tsai, the central bank jumped into the market "to smooth out volatile capital flows and maintain an orderly foreign exchange market."

Tsai did not disclose exactly how much the central bank spent on market intervention last month.

In September, the U.S. dollar index, which traces the value of the currencies of Washington's major trading partners against the greenback, fell about 1.3 percent, while the Taiwan dollar rose 1.09 percent against the U.S. currency.

The Australian dollar, British pound, Japanese yen, Chinese yuan and the euro also rose 1.84 percent, 1.69 percent, 1.64 percent, 1.33 percent and 0.77 percent, respectively, against the U.S. dollar in September.

The strength of other non-greenback currencies also helped to offset the impact resulting from the central bank's market intervention when assets denominated in those currencies were converted into U.S. dollars, which capped the decline of forex reserves in September, the bank said.

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$814.8 billion, in September, up from US$811.3 billion at the end of August.

Those holdings represented 141 percent of Taiwan's total foreign exchange reserves as of the end of September, up 1 percentage point from the end of August, the data indicated.

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.