Central bank Governor Perng Fai-nan (彭淮南) said yesterday that there has been an recent influx of foreign capital that was allegedly purchasing government debt.
“The motive is questionable since Taiwan’s bonds pay lower yields than their US counterparts,” Perng told the legislature’s Finance Committee.
Asked if foreign investors have been speculating on the New Taiwan dollar, Perng said the bank was aware of investors’ intentions.
“However, foreign funds are free to enter and exit the local markets,” he said.
Foreign funds’ currency traders have customarily bought government bonds to temporarily park their capital. The bank monitors investment flows on government debt, especially those from foreigners, to determine if hot money has come onshore.
Perng told lawmakers that the bank would respect market mechanisms and promised to intervene to maintain market stability if excessive activity was spotted.
Another lawmaker asked if the bank was directing the NT dollar’s movement in tandem with the South Korean won, but Perng denied this.
The NT dollar has remained relatively stable despite recent fluctuations, Perng said, adding that he checked foreign capital flows daily to see if the funds matched their intended purposes.
He said the heavy trading in NT dollars was an isolated occurrence but the bank was keeping a close watch on the situation.
The New Taiwan dollar has risen against the US currency for several straight days despite the dim economic outlook. In Taipei trading yesterday, the currency rose NT$0.021 to close at NT$34.494 against the greenback.
The NT dollar’s gains may be limited by central bank intervention as the authorities seek to protect exporters, said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp in Singapore.
Exports fell for the sixth straight month last month, the longest losing streak in seven years, as the global recession curbed demand for Taiwanese goods. Overseas shipments dropped 28.6 percent from a year earlier, following January’s record 44.1 percent slump, the government said on Monday.
“Taiwan’s central bank has made its intention quite clear, that it will try to prevent currency appreciation,” Ng said.
Meanwhile, Perng dismissed media reports he was opposed to financing public construction projects with foreign exchange reserves.
The government has no intention of touching the reserves, though it bought military combat aircraft with money from the reserves in the past, he said.
“What I try to underscore is that the reserves cannot be used without compensation,” he said.
RSS