Forex reserves stop a 2-month falling streak

Taipei, Dec. 7 (CNA) Taiwan's foreign exchange reserves ended a two-month falling streak in November on the back of an increase in returns from the management of the local central bank's portfolio of forex reserves, according to the bank.

Data compiled by the central bank showed the country's forex reserves at the end of November stood at US$577.97 billion, up US$1.13 billion from a month earlier. Taiwan's forex reserves hit a record high of US$579.06 billion at the end of August.

The central bank said November was one of the traditional peak seasons for the bank to receive returns from its portfolio management, which helped to boost that month's number.

However, Ho Lan-chih (賀蘭芝), deputy director general of the central bank's Foreign Exchange Department, said that a stronger U.S. dollar offset the contribution of the growing returns in November to some extent, as non-greenback denominated assets in the forex reserves were converted to the American currency.

According to the central bank, the U.S. dollar index, which tracks the value of the U.S. unit against the currencies of Washington's six major trading partners, rose 1.69 percent, while the Taiwan dollar fell 1.51 percent, and several other non-U.S. dollar currencies such as the euro, the British pound, the Canadian dollar, and the Chinese yuan also moved lower.

Ho said as supply and demand in the local forex market tilted toward a balance in November, the central bank was not involved in much intervention.

The central bank tends to step in to smooth the volatility in the local forex market when the U.S. dollar moves sharply higher or lower against the Taiwan dollar, which affects forex reserve levels.

Ho said the market widely expected a 70 percent chance that the U.S. Federal Reserve would lower its key interest rates by 25 basis points in a policymaking meeting scheduled for Dec. 17-18. When the Fed cuts interest rates, the U.S. dollar will weaken.

Meanwhile, central bank data showed that the value of foreign investors' holdings of Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits fell to US$802.5 billion at the end of November, down from US$844.3 billion at the end of October.

Those holdings represented 139 percent of Taiwan's total foreign exchange reserves as of the end of November, down 7 percentage points from the end of October, the data indicated.

Ho said the fall largely reflected the weakness of the local stock market in November after foreign institutional investors registered a net sell of about NT$250 billion (US$7.71 billion) worth of shares in Taiwan. In November, the local main board fell 557.93 points or 2.44 percent.

According to the Financial Supervisory Commission, foreign institutional investors recorded a net fund outflow of US$1.297 billion in November, marking the first net fund outflow in four months.

Taiwan ranked as the fourth largest forex reserve holder in the world, trailing China (US$3.26 trillion), Japan (US$1.08 trillion), and Switzerland (US$831.5 billion), the central bank said.