The New Taiwan dollar is likely to appreciate against major trading currencies this year, and economists say this will negatively impact the nation's economic growth.
The NT dollar has appreciated 6 percent in the past year -- more than 8 percent in real terms, said Michael Spencer, chief economist of Deutsche Bank AG's Asia division, said during a seminar in Taipei yesterday.
As a highly export-sensitive economy, Taiwan's central bank is averse to a stronger currency which causes exports to be more expensive and therefore export growth to slow, Spencer said.
Spencer predicted export growth would fall from the 25 percent to 30 percent seen last year to 10 percent this year.
The Academia Sinica last week forecast the export sector would grow 8.8 percent year-on-year to NT$7.55 trillion (around US$236 billion) this year, down from 17.49 percent growth last year.
"The Taiwan dollar has appreciated 8.5 percent year-on-year. In my view, that is about as much as the central bank can tolerate," Spencer said.
The NT dollar yesterday lost NT$0.119 to close at NT$32.179 against its US counterpart on the Taipei foreign exchange market. Dealers attributed the decline to speculation over a further interest rate hike by the US Federal Reserve.
James Malcolm, director of Deutsche Bank's Asian foreign exchange and strategist of short-term rates, said the US may continue its weak US dollar policy to balance its unprecedented global trade and investment deficit, in the long term.
According to Malcolm who also attended the briefing yesterday, the US dollar has fall about 20 percent against other major currencies since 2001. It will require a decline of another 10 percent per year for the US to simply stabilize its current account deficits, if other components making up the GDP growth remain unchanged, he added.
Other investment banking institutes also forecast the NT dollar would continue to appreciate this year. JP Morgan Chase Bank and Citibank predicted the NT dollar would trade at NT$31.5 against the greenback by the end of this year, while Merrill Lynch & Co forecast a rate nearer NT$32.
Furthermore, analysts at Deutsche Bank do not expect a revaluation of Chinese yuan, saying expected weaker growth in the second half of this year will add to concerns about the negative impact of stronger currencies.
As a result, capital inflows are likely to remain strong in the first few months of the year, but later turn weak and push asset prices down among Asian countries, Spencer said.