Taiwan's central bank urged overseas financial institutions to invest money they brought into the island in the stock market after the local currency gained.
"Foreign investors did not purchase stocks after their funds had been converted into New Taiwan dollars," the bank said in a statement on its Web site.
"The size of NT dollar funds hoarded by some foreign investors appears to be rather excessive."
The NT dollar has strengthened more than 9 percent against the US dollar in the past six months, according to Bloomberg data.
George Chou (周阿定), director general of the central bank's foreign exchange department, told a meeting of foreign financial institutions yesterday that they should invest in the island's stock markets, rather than speculating on the Taiwan dollar, Economic Daily News (經濟日報) said yesterday.
The report added that the central bank will closely monitor capital inflows.
Overseas institutions are required to state their investment plans when transferring funds to Taiwan, according to the newspaper.
Meanwhile, Taiwan's money supply growth slowed in January for the first time in three months, reflecting a surge in demand for cash in the year-earlier period ahead of the Lunar New Year holiday, the central bank said in a statement.
M2, the broadest measure of the island's money supply, rose 6.2 percent from a year earlier after increasing 7.3 percent in December, the central bank's statement said.
It was the smallest gain since December 2003.
Growth slowed because of higher demand for the local currency in January 2004 when the Lunar New Year holiday fell in that month, the bank said.
The holiday fell in February this year.
M1A, which tracks net currency in circulation plus checking accounts and passbook deposits, expanded 7.8 percent last month after growing 14.8 percent in December, the central bank said.
M1B, which excludes time deposits and foreign-currency deposits included in M2, grew 9 percent last month after expanding 14.4 percent the previous month.
Loans and investments by major financial institutions rose 8.2 percent last month after climbing 8.7 percent in December, the statement said.
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