Forex reserves return to US$600 billion mark on market intervention

Taipei, Sept. 5 (CNA) Taiwan's foreign exchange reserves rose from a month earlier, and returned to the US$600 billion mark at the end of August as the local central bank entered the forex market to prevent the U.S. dollar from falling further against the Taiwan dollar.

Data released by the central bank on Friday showed the country's forex reserves stood at US$601.90 billion at the end of August, up US$7.63 billion from a month earlier, putting an end to a two-month drop. The rebound was the highest year-on-year increase in more than a year, the data indicated.

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the bank's Foreign Exchange Department, said foreign institutional investors moved large funds out of the local market in July after receiving huge cash dividends from the listed companies in which they invested, causing the Taiwan dollar to depreciate.

But the situation changed in August as foreign institutional investors registered a net fund inflow of about US$1.2 billion to Taiwan to hunt for bargains in the local equity market, which had been hammered in the previous month amid global volatility, Tsai said. The capital inflow boosted the Taiwan dollar, Tsai added.

To help the local foreign exchange market remain stable, Tsai said the central bank intervened by buying the greenback and selling the Taiwan dollar to moderate the American unit's losses.

Without the central bank's intervention, the greenback could have seen a steeper decline, market analysts said.

Tsai did not disclose how much the central bank spent in August's market intervention. Late last year, the bank announced in a joint statement with the U.S. Treasury Department that it would release the figure on a quarterly basis.

In addition to the central bank's intervention, the forex reserves' growth in August also reflected an increase in returns of the bank's portfolio management as well as exchange rate movements of other reserve currencies against the U.S. dollar in the month.

Meanwhile, the central bank data showed that as of the end of August, foreign investors held US$1.861 trillion in Taiwan-listed stocks, bonds and Taiwan dollar deposits, up from US$1.663 trillion at the end of July.

These holdings were the equivalent of 309 percent of Taiwan's total forex reserves in August, compared with 280 percent a month earlier, according to the central bank.

A strong rebound in the Taiex, the Taiwan Stock Exchange's benchmark index, which rose sharply by 6.98 percent, reflected the increase in these foreign holdings.

The central bank has said it will maintain ample forex reserves to ensure that domestic financial markets remain stable and guard against any sudden outflow of funds by foreign institutional investors.