The New Taiwan dollar, which depreciated 1.27 percent against the greenback last year, may not weaken drastically to boost exports this year, the central bank said on New Year’s Eve.
The NT dollar traded at NT$32.86 against its US counterpart in Taipei on the last day of the year, down NT$0.417 from a year earlier.
Local financial markets were closed yesterday for New Year’s Day.
Central bank Governor Perng Fai-nan (彭淮南) said his agency would continue a policy of limited fluctuation for the currency, indicating that the room for devaluation was limited.
Domestic economic research bodies have predicted that the NT dollar would weaken to NT$33.3 or lower this year as the government seeks to lift exports, the main driver of the nation’s economic growth.
Perng said allowing the NT dollar to depreciate offered only short-term benefits, while increasing financial pressure on importers.
Factors such as inflation should also be taken into consideration, he said.
“Some exporters are worried about losing [orders] to their South Korean rivals after the South Korean won weakened 25 percent in a year,” Perng said. “The truth is that Korean commodities are more expensive than Taiwanese goods by 6 percent to 7 percent, leaving Taiwan a competitive edge equal to that amount.”
The governor said the nation’s consumer price index had averaged 1.2 percentage points lower than that of South Korea in the last six years.
A volatile currency is unfavorable for corporate development, Perng said, adding that the drastic devaluation of South Korea’s won had increased liquidity pressure on Korean companies with foreign currency-denominated debts, prompting some companies to sue banks.
“Currency policy alone cannot save the economy,” Perng said. “Too much change in value either way will hurt exporters or importers.”
While China buys nearly 40 percent of the nation’s exports, Japan supplies about 30 percent of the nation’s imports, the governor said, adding that many importers were complaining about a strong yen.
The yen gained 24 percent last year.
Perng advised domestic makers to improve productivity, innovation and distribution strategies to stay competitive.
Polaris Research Institute (寶華綜合經濟研究院) president Liang Kuo-yuan (梁國源) said the prices of the nation’s exports had played less of a role in dragging down the economy than the drop in demand.
The world economy must recover before the domestic economy can regain a solid momentum, Liang said.