The US Federal Reserve’s bigger-than-expected interest rate cut sent the New Taiwan dollar to a six-week high yesterday but analysts said it was unlikely the central bank would make similar moves this year.
The NT gained 0.9 percent, or NT$0.31 dollar, to trade at NT$32.72 against the greenback at the close of trade in Taipei, its strongest showing since the end of October.
Turnover was US$2.031 billion on the Taipei Forex Inc. Including transactions of US$329 million on the smaller Cosmos Foreign Exchange, total trade was US$2.36 billion, data from the two foreign exchanges showed.
The US central bank, going further than expected, cut its target for the overnight federal funds rate to a range of zero to 0.25 percent on Tuesday, ushering in an era of the zero-rate policies that Japan adopted for years in its fight against deflation.
The Fed move prompted investors around the world to dump US dollars on concern the currency may further weaken.
“The central bank led the selling [of US dollars] in the local market,” a dealer at the Union Bank of Taiwan (聯邦銀行) said by telephone. “It accounted for at least 50 percent of the exchange volume [yesterday].”
The dealer, who asked not to be named, said the central bank probably sought to warn speculators not to underestimate NT dollars. Economists at home and abroad have forecast that the local currency will devalue to NT$34.5 next year.
“Traders who think they have figured out the central bank’s strategy on NT dollars may have to think twice,” the dealer said.
While surprised at the size of the Fed rate cut, he maintained the view that the currency was entering a seasonal adjustment and would hover between NT$32.7 and NT$33.3 against the greenback until early February.
Other watchers echoed the surprise but believed the central bank here would leave the rates untouched until the end of this year.
Tony Phoo (符銘財), chief economist of Standard Chartered Bank in Taiwan, said he expected the central bank would slash interest rates by another 75 basis points in the first quarter of next year to help spur economic growth.
“It is likely for the agency to do so in January at the earliest, prompted by deepened declines in exports and other key economic pointers,” Phoo said by telephone.
Phoo said that while there was no rush for rate cuts here, the central bank would not buck the global trend once counterparts in other major countries lower rates.
Central banks in Europe and Asia are set to adjust their interest rates next month, Phoo said.
Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), also expected further rate cuts by the central bank following the next release of export figures early next month.
Liang attributed yesterday’s rally in NT dollars to a glut of US currency, which has nothing to do with economic fundamentals.
The central bank yesterday said in a statement that the exchange rate of the NT dollar was relatively stable when the local unit’s 0.9 percent rise against the US dollar yesterday was compared to the 1.9-percent increase in the South Korean won.
Union Bank of Taiwan is partly owned by Lin Rong-san (林榮三), founder of the Liberty Times Group, the parent company of the Taipei Times.