Taiwan's central bank to inspect banks to prevent forex market speculation

Taipei, May 6 (CNA) Taiwan's Central Bank said on Tuesday that it will kick off special inspections into the local banking sector to discourage speculators from targeting the foreign exchange market and to ease volatility after a recent rapid appreciation of the Taiwan dollar against the U.S. dollar.

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, said the upcoming banking inspections will cover foreign custody banks and Taiwanese banks, and will monitor whether foreign institutional investors intentionally parked their funds in their accounts for longer than they were supposed to in an attempt to speculate in the forex market rather than invest in the stock market.

Tsai said the central bank will examine whether foreign institutional investors will follow the central bank's instructions to pour their funds into the stock market within seven days after they move the money to Taiwan.

In addition, the central bank will look at whether foreign institutional investors have kept their profit for long after trimming stock holdings.

Tsai added it was possible for foreign institutional investors to keep their money in their accounts longer than expected if they had simply wanted to wait for an opportunity to speculate in the forex market for a profit.

Tsai's announcement came after the Taiwan dollar soared on Friday and Monday, with the U.S. dollar plunging 6.21 percent against the local currency in only two trading sessions.

Local news media recently reported that market analysts attributed the U.S. dollar's sharp losses to pressure from the Trump administration, as Taiwan and the United States have entered talks over a potential reduction of the 32 percent reciprocal tariff imposed by the White House on April 2, which was later temporarily put on hold for 90 days.

On Monday evening, Yang Chin-long (楊金龍), governor of the central bank, said the bank stepped in to smooth market volatility, describing the fluctuations as "abnormal." He urged market commentators to avoid excessive speculation about a continued sharp appreciation of the local currency.

Yang said he hoped the irregularities will stop now.

After Yang made it clear that the central bank would curb speculation caused by hot money, the U.S. dollar reversed a slide in the two sessions and rose NT$0.135 to close at NT$30.280 on Tuesday. Dealers said the central bank's intervention had smoothed wild fluctuations, adding that its bottom line was the NT$30 mark.

Tsai said Tuesday's movement of the Taiwan dollar showed the market had turned rational.

Market intervention to curb significant appreciation of the Taiwan dollar is expected to wipe off the recent gains the central bank booked in its portfolio.

Foreign news media reports have said the central bank suffered a big loss of NT$2 trillion (US$66.05 billion) since the beginning of May, but Tsai said the bottom line remained sound so the volatility in the forex market would or would not affect the bank's ability to pay its profits to the national treasury.