The pace of a foreign fund exodus is expected to slow down following the removal of uncertainty over the US Federal Reserve’s interest rate decision, Financial Supervisory Commission (FSC) Chairman William Tseng (曾銘宗) said yesterday.
After wrapping up a two-day policymaking meeting a day earlier, the Fed announced that it was raising its key interest rates by 0.25 percentage points to a range of between 0.25 percent and 0.5 percent.
It was the first rate hike in nearly a decade and indicates the US central bank’s confidence in that nation’s economy.
Tseng’s remark came as local equities rose yesterday in Taipei trading in line with other markets in the region. The TAIEX closed up 135.01 points, or 1.65 percent, at 8,319.67.
Analysts said foreign investors seemed to have returned to the local market after cutting their holdings earlier due to uncertainty over the Fed’s move.
Global equity markets had also operated under the shadow of a possible interest rate hike by the Fed since the beginning of this year.
Before the Fed’s decision, foreign institutional investors had moved funds out of Taiwan, with such outflows most obvious in June and July, Tseng said, adding that foreign investors remitted more than US$10 billion out of the nation during the two-month period.
From the beginning of this month to Wednesday’s rate hike, foreign investors had moved US$1.45 billion out of Taiwan, Tseng said.
Now that the Fed has made its decision, it is unlikely that foreign investors would continue their large-scale movement of funds out of Taiwan and share prices are expected to be unaffected, he said.
A strong showing in the local equity market yesterday was evidence that the negative impact resulting from the Fed’s rate hike was fading, Tseng said.
However, some academics have raised concerns over a new wave of currency depreciation competition in the region following the rate increase.
National Chengchi University finance professor Norman Yin (殷乃平) said that the Fed’s decision was the beginning of a rate-hike cycle and that further rate increases could follow next year.
On the back of higher interest rates in the US, the greenback is expected to continue its upward trend, which would place downward pressure on currencies in the region, Yin said.
Under such circumstances, regional currencies could enter a new depreciation war, with export-oriented economies such as Taiwan and South Korea trying to take advantage of the weakness of their currencies to boost their global market shares, he said.
In the spot market, the New Taiwan dollar declined yesterday against the US dollar by NT$0.085, or 0.3 percent, to close at the day’s low of NT$33.035, Taipei Forex Inc data showed.
Forward contracts on the NT dollar extended declines as the central bank yesterday lowered its policy rate by another 12.5 basis points to 1.625 percent for a second consecutive quarter.
One-month non-deliverable forwards dropped 0.6 percent to NT$32.935 versus the greenback at 5:14pm in Taipei trading, after falling 0.3 percent on Wednesday, according to data compiled by Bloomberg.
Government bond prices were little changed yesterday, with the yield on notes due 2025 at 1.176 percent, according to Taipei Exchange prices.
Additional reporting by Bloomberg
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