Taiwan's forex reserves dip below US$600 billion on intervention

Taipei, July 7 (CNA) Taiwan's foreign exchange reserves fell below the US$600 billion mark as of the end of June as Taiwan's central bank stepped into the market to limit the U.S. dollar's appreciation against the Taiwan dollar during the month.

Taiwan's forex reserves at the end of June fell by US$7.922 billion from a month earlier to US$597.15 billion, stopping a streak of two consecutive months of increases, data compiled by the central bank and released Monday showed.

Though the bank netted positive returns on its portfolio in June, its sales of the U.S. dollar and purchases of the Taiwan dollar to limit the greenback's gains still sent forex reserves lower for the month, said Tsai Chiung-min (蔡炯民), head of the Foreign Exchange Department.

Tsai said that after the U.S. Federal Reserve concluded its latest policymaking meeting in mid-June, investors tended to think that newly minted Fed Chairman Kevin Warsh appeared more hawkish than expected.

In addition, Tsai said, the Fed's latest dot plot, which indicates individual members' expectations for interest rates, projected at least one rate hike by the end of this year.

With the market expecting an uptick in interest rates, Tsai said, the U.S. dollar gained strength in the global market, placing pressure on non-greenback currencies, including the Taiwan dollar.

Also adding downward pressure on the Taiwan dollar, Tsai said, was foreign institutional investors moving funds, including capital gains and cash dividends, out of Taiwan in June, sending the local currency down NT$0.453, or 1.42 percent, against the U.S. dollar.

Tsai said the central bank's market intervention was mainly aimed at maintaining market order and was on a smaller scale than in March, when the war in the Middle East broke out.

On Monday, the U.S. dollar rose above the NT$32 mark against the Taiwan dollar for the first time since March 24, when the American unit ended at NT$32.028, to close at NT$32.025.

Tsai said the weakness of the Taiwan dollar on Monday largely reflected market expectations of a stronger U.S. dollar.

Meanwhile, central bank data showed that foreign investors held US$1.889 trillion in Taiwan-listed stocks, bonds and Taiwan dollar deposits at the end of June, down from US$1.896 trillion at the end of May.

These holdings were the equivalent of 316 percent of Taiwan's total forex reserves in June, compared with 313 percent a month earlier, according to the central bank.

The central bank also released data showing the bank sold US$12.59 billion more U.S. dollars than it bought in the first quarter through market intervention, the second consecutive quarter in which it was a net seller of U.S. dollars.

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.