Mon, Feb 21, 2005 - Page 10 News List

NT dollar seen remaining strong against greenback

STAFF REPORTER

The New Taiwan dollar is likely to maintain its upward momentum this year as market participants focus on the size of the US current account deficit and its implications for the US currency, according to the Council for Economic Planning and Development.

With investors also focused on the slower pace of interest rate hikes by the US Federal Reserve Board this year, the US dollar is seen having little support, the council added.

The current account is a broad measure of a nation's global trade status. As deficit widens, the nation needs to have more money flow in as portfolio inflows. If inflows are not large enough to offset the money going offshore to buy foreign goods, the country's currency will decline, analysts said.

The local currency rose 0.44 percent over the past week to end at NT$31.542 against the US dollar on Friday on increased purchases of the nation's stocks by foreign investors. The NT dollar has appreciated against the greenback by more than 6 percent over the past year.

Currency traders said the local currency is expected to test the NT$31.50 level this week, but the central bank's attitude toward the currency's appreciation may decide how high the NT dollar moves. The currency is likely to trade in a range between NT$31.45 and NT$31.65 this week, they added.

To maintain the stability of consumer prices, the nation's central bank last year fine-tuned its monetary stance, moving to a neutral monetary policy from the loose approach it had for three years, according to the council.

A loose monetary policy by the central bank encourages commercial banks to lower their interest rates, which thereby makes borrowing more attractive for businesses. The expansion in bank credit further lifts the rate of growth of the money supply and boosts demand for non-essential consumer goods.

But given the rising prices of oil and major raw materials last year, the central bank decided to ease the market's inflation concerns through two 0.25 percent hikes in its key rates in September and December.

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