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Central Bank looks at NT dollar

The nation's central bank is expected to continue standing firm on its long-term objective of steering the New Taiwan dollar to a gradual rise against its US counterpart, while the bank's governor, Perng Fai-nan (彭淮南), is to give a report on the recent apprecation of the local currency at the Legislative Yuan today.

The purpose of this is to curb any "unreasonable" appreciation in the NT dollar triggered largely by inflows of short-term "hot money," or undesired speculation, according to documents received by the Chinese-language Liberty Times on Friday.

The central bank has several times reiterated that one of its responsibilities is to maintain market order. Therefore, in his speech, Perng is expected to report on the impact of a strong NT dollar on Taiwan's industries and the bank's proposed measures to counter this.

The governor's report is in the spotlight due to growing concerns that a steep and constant rise in the local currency could hurt Taiwan's trade-oriented economy.

"The central bank, in principle, will let market forces drive the foreign exchange market. But, it is imperative for the bank to step in when the NT dollar fluctuates excessively, driven by the movement of short-term capital, or unreasonable factors," Perng said in the report.

In the report, set to be released today, the central bank attributed the recent surge of the NT dollar to an inflow of overseas funds. In January, foreign investors remitted US$1.6 billion funds to the local money market, according to the bank.

Perng's remarks were widely seen as an attempt to stand pat on the monetary policymaker's long-term objective of keeping a fluctuating NT dollar relatively stable against the greenback.

Perng is expected to defend the bank's policy as its "manipulation" of the local currency has drawn fire from political opposition parties, but also garnered the support of local economists.

Since the beginning of the year, the NT dollar appreciated 3.43 percent to NT$30.82 against the US dollar on a sustained foreign-currency inflow. But the local currency's firming trend was temporarily thwarted by the bank's aggressive intervention last week.

To divert a possible attack by international speculators, the bank last month made the unusual request to-fund managers to use capital in NT dollar denominations after transferring money into local accounts to purchase local stocks.

Despite the recent volatility of the NT dollar, the bank said in the report that, taking a long-term view of the situation, the local currency was relatively stable compared to other major currencies.

Over the past six years, the NT dollar has risen 2.94 percent versus the greenback, while the Japanese yen, Korean won and euro have climbed over 10 percent against the greenback during the same period, the bank said.

Another focus of the report would be the bank's stance on the nation's key interest rates, just before policymakers come together at the end of the month for the bank's quarterly board meeting.
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