The central bank warned against currency market speculation yesterday in a bid to prevent the US dollar from falling further against the New Taiwan dollar.
On its Web site, the central bank cited comments supporting capital intervention by Nobel Prize-winning economist Joseph Stiglitz, a move which dealers saw as a clear hint it did not want the greenback to fall further.
“Be careful. You may be getting the easy money, but it’s overnight money. You don’t build robust growth based on easy money,” Stiglitz, was quoted as saying.
The central bank also ran statements from the UN and the G7 finance ministers expressing similar warnings against speculative activity in the exchange market.
Capital controls are neither “ineffective nor harmful” for emerging-market economies, an excerpt from a UN Trade and Development Report said.
“The reference materials handed out by the central bank indicate that it doesn’t want any short-term speculative behavior,” said Alan Liao (廖建中), an economist at Chinatrust Commercial Bank (中國信託商銀). “Before exports begin rebounding strongly, the central bank is likely to adhere to a policy of favoring a weaker Taiwan dollar.”
Taiwan’s trade-dependent economy saw exports drop 29.6 percent in the first nine months of the year from the same period last year and is keen to protect its competitiveness by keeping its currency from strengthening too much.
The handout is for the “media’s reference,” the central bank said in an e-mailed statement on Thursday night, after the Chinese-language Commercial Times reported that the central bank is trying to identify foreign exchange speculators by searching through bond sales data for last month, when it started a crackdown on such investment.
The central bank telephoned commercial banks last month advising against betting on a US dollar decline. On Sept. 30, the bank said the New Taiwan dollar should reflect the economy’s performance and policy makers would “step in to maintain order” in the currency market if “seasonal or irregular” factors caused excessive volatility.
“The central bank’s move is a strong warning that it doesn’t want to see hot money impact the market,” said a trader of a local bank who asked not to be named for fear he might attract the central bank’s attention.
He said the central bank tends first to see if words alone are enough to change market behavior, before resorting to actual intervention.
“The US dollar stopped falling today. That means the warning was effective. There was little sign of central bank intervention today, but if foreign funds continue to flow in and boost the local currency, I don’t think the central bank will tolerate it,” the trader said.
RSS