Taiwan's forex reserves down for 2nd straight month at end of August

Taipei, Sept. 5 (CNA) Taiwan's foreign exchange reserves dropped for the second consecutive month at the end of August, as the central bank intervened in the currency market to limit the Taiwan dollar's depreciation against the U.S. dollar.

Data compiled by the Central Bank of the Republic of China (Taiwan) showed that the country's forex reserves fell US$439 million from a month earlier to US$597.43 billion as of the end of August.

According to the bank, the New Taiwan dollar plunged NT$0.689 against the U.S. currency in August.

Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, explained that factors affecting changes in forex reserves include the appreciation of major currencies against the U.S. dollar.

Around mid-August, Tsai said, foreign investors sold a significant number of Taiwanese stocks, prompting the central bank's intervention to stabilize the market which led to a decline in its reserves.

Looking at the performance of major currencies in August, the U.S. dollar index fell 2.2 percent, while the euro, pound sterling, Australian dollar, Japanese yen, Swiss franc, and Chinese yuan generally strengthened.

The New Taiwan dollar, by contrast, was relatively weak, depreciating by over 2 percent.

The weak performance was mainly due to foreign investors repatriating dividends, selling off shares over several consecutive trading days, which also translated into capital outflows in the forex market, Tsai explained.

Based on statistics, foreign investors' net outflows, including earnings and dividends, totaled about US$6 billion, he noted.

Compared with the second quarter, the market's irrational expectations of currency appreciation have largely dissipated, while investors generally expect the U.S. Federal Reserve to cut interest rates by 25 basis points in September, bringing total rate cuts this year to 50-75 basis points, Tsai said.

All these factors have mostly been priced in, hence their impact on the exchange rate is expected to be limited in the third quarter, the official said.

Although Taiwan's forex reserves fell for a second consecutive month in August, they remain substantial, Tsai said, adding that the central bank will disclose in due course the figures on the interventions made in its upcoming report to the Legislative Yuan.