The central bank might retain its policy to maintain a relative weak currency rate for the New Taiwan dollar in the near future to secure the nation’s momentum on exports, following South Korea’s policy of cutting rates twice in three months in response to a significant slump to its export sector, economists said.
The South Korean central bank cut its key interest rate by 25 basis points to 2.75 percent last week as a result of the global downturn, the second consecutive decline this year, raising concerns the South Korean won may depreciate against the US dollar in the near future, which could further impact Taiwan’s export competitiveness.
“Taiwan’s central bank could lead the NT dollar to slightly depreciate against the US dollar in the near future to slow pressure on exporters,” Taiwan Institute of Economic Research (台灣經濟研究院) director Yang Chia-yen (楊家彥) said yesterday.
Yang said the devaluation of the NT dollar would be modest, as depreciating too much against the US dollar would have a limited effect on the nation’s export sector given the current sluggish global economic circumstances
Since the US Federal Reserve’s third round of quantitative easing (QE3) may not raise the excess liquidity issue in Taiwan as much as expected, the NT dollar may keep in the range between NT$29 and NT$30 versus the greenback in the near-term future, Yang said.
Considering the possibility that debt problems in the US and Europe could reignite next year, Yang expected the NT dollar would further devalue over the NT$30 level against the greenback, as the US dollar remains a safe haven for investors.
Taiwan Research Institute (台灣綜合研究院) president Wu Tsai-yi (吳再益) shared Yang’s view.
“Currently, Taiwan’s currency rate has no space to appreciate versus the greenback, as it is impossible to let go of the export sector, the major driving force of the economy,” Wu said by telephone yesterday.
Wu said the central bank may leave the NT dollar at the range between NT$29 and NT$30 against the US dollar in the near future, unless prices of global agricultural and industrial materials show a significant rise in the near future, pushing the bank to guide the NT dollar’s appreciation to slow inflationary pressure.
Private think tank Yuanta-Polaris Research Institute (元大寶華綜合經濟研究院) president Liang Kuo-yuan (梁國源) said the central bank may alter the NT dollar’s rate depending on the South Korean won’s trend in the near future.
The NT dollar could trade between NT$29.3 and NT$29.5 against the US dollar by the end of the year, Liang said at a conference last week.