Fri, Feb 13, 2009 - Page 11 News List

Export slump drives local currency to four-year low

WEAKNESS Analysts said the central bank should allow a gradual rather than steep depreciation of the New Taiwan dollar to cushion its impact on the economy

BLOOMBERG AND STAFF WRITER, WITH CNA

The New Taiwan dollar weakened further yesterday, approaching a four-year low against the US dollar on concern that a record plunge in China’s imports would crimp earnings among the nation’s electronics companies.

The NT dollar fell NT$0.024 to close at NT$34.025 against the US dollar, Taipei Forex Inc said.

On Wednesday, the local currency touched NT$34.08, the lowest intraday level since September 2004.

Patrick Bennett, Asia foreign exchange and rates strategist at Societe Generale SA in Hong Kong, forecast the NT dollar would drop to NT$34.20 by the end of June and further to NT$34.50 three months later.

China, the nation’s biggest market for overseas sales, reported on Wednesday that imports fell 43 percent last month, while exports declined by the most in 13 years.

Taiwanese exports plunged an unprecedented 44.1 percent to US$12.37 billion last month from a year earlier, the Ministry of Finance said on Monday.

Shipments to China slumped on weaker demand for electronics components used in products assembled by China for export, it said.

“The imports data from China have shown global economic activity has contracted considerably,” Bennett said. “Asian currencies are going to be generally under pressure, but the Taiwan dollar might outperform the rest of Asia.”

Yang Chia-yen (楊家彥), a research fellow at the Taiwan Institute of Economic Research, said that local currency devaluation would not necessarily boost exports, but rather would increase the cost of imports.

Sagging exports would cause difficulties for many businesses, while unemployment could increase because many industries would have to contend with fewer orders, which would lead to layoffs, sliding consumer confidence and a contraction in domestic demand, Yang said.

Kevin Hsiao (蕭正義), head of UBS Wealth Management Research in Taiwan, said the central bank should allow a gradual rather than steep depreciation of the local currency to reduce any possible side-effects.

As for interest rates, Hsiao said there was still room for further reductions.

The central bank has lowered the benchmark interest rate six times since September. The discount rate — the rate the central bank charges banks for loans — has dropped by 2.125 percentage points to 1.5 percent.

As Singapore and Hong Kong saw their economies contract by 3.7 percent and 3.4 percent respectively in the fourth quarter of last year, Hsiao said Taiwan’s GDP might post an even larger decline over the same period, given its lackluster export performance and the 32 percent drop in industrial production in December.

Hsiao said the central bank could further slash the discount rate to 1 percent.

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