The New Taiwan (NT) dollar could decline further against the greenback as the central bank has agreed to accept local banks’ US dollar deposits, market analysts said yesterday.
The analysts made the forecast after the central bank reportedly “intervened” a day earlier to drive down the local currency’s exchange rate against the greenback to below the psychological barrier of NT$33.5.
Trading was thin on the Taipei Foreign Exchange for most of the session on Saturday, but a big purchase of US$70 million late in the session immediately sent the NT dollar down by NT$0.141 to close at NT$33.501, its low for the day.
The dramatic turnaround caught foreign exchange dealers at local banks off guard and many believed that no player other than the central bank could have executed such a trade.
Some further speculated that the deal showed the central bank’s intention to ward off any rise in the NT dollar’s value at a time when Taiwan’s exports are experiencing contraction because of the global economic downturn.
A currency trader said on Saturday it was a good time for the central bank to make its move as global markets were all closed on the weekend.
The central bank’s unprecedented decision to accept US dollar deposits from local banks for up to one year further reinforced currency dealers’ belief that the central bank does not want the NT dollar to appreciate and undermine the international competitiveness of Taiwan’s exporters.
The central bank, which will pay interest on the deposits, said the move would offer local banks more channels to use their greenback holdings and make it more attractive for local banks to solicit US dollar deposits.
The move, however, will put further pressure on the NT dollar to depreciate and help boost Taiwan’s exports, analysts said.