Wed, Oct 05, 2005 - Page 11 News List

NT dollar closes at 11-month low but could drop further

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The New Taiwan dollar had its weakest close in 11 months amid speculation the central bank wants the currency to weaken, while Morgan Stanley said a weak local currency will help increase profits for the country's technology exporters.

The central bank reiterated on Monday its view that the local currency is "relatively stable." It was the third time in the past two weeks the central bank has said the NT dollar, which has weakened 4.7 percent this year, was stable compared with other currencies.

Based on Morgan Stanley's estimate, a 1 percent depreciation in the NT dollar raises Taiwanese technology makers' annual profit by an average 2.1 percentage points, Dickson Ho (何資文), head of research at Morgan Stanley in Taipei, said yesterday.

The NT dollar fell NT$0.052 to close at NT$33.298 against its US counterpart, the weakest close since Nov. 3, according to Taipei Forex Inc.

A declining currency makes it easier for Taiwanese companies to cut prices overseas and attract buyers for their exports, which make up almost half of the nation's economy. Overseas sales grew in August at the fastest pace in four months as the nation's currency had its largest monthly decline since May 2001.

The decline in the value of the local currency also inflates overseas proceeds when converted into the NT dollar.

"The Taiwan dollar has room to decline," said Gary Huang, a currency trader at Union Bank of Taiwan (聯邦銀行).

"The central bank probably thinks the currency hasn't fallen too much and that it's still manageable," he said.

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