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Weaker currency an attempt to boost exports

The central bank may be allowing the New Taiwan dollar to slide in order to boost sagging exports, market watchers say, though bank officials deny there's a policy to deliberately weaken the currency.

In the last 12 months, the NT dollar has lost 12 percent of its value against the greenback.

During Wednesday's trade, the currency plunged 1.1 percent -- a day after the government reported June exports had fallen nearly 17 percent from a year earlier to US$10.3 billion.

The timing of the drop and other factors has led many market watchers to conclude that the bank is allowing the NT dollar to fall in order to boost exports. That in turn would help the economy, which posted glacial growth of just 1.06 percent in the first quarter.

A foreign exchange dealer, speaking on the condition of anonymity, noted that the bank was a major seller of NT dollars on Wednesday.

As the NT dollar hovered at around 34.800, the bank stepped in and bought greenbacks, forcing the NT dollar down to 35.300.

"During the last minutes of trading Wednesday, both the Farmers' Bank of China and Taiwan Cooperative Bank -- which usually buy US dollars on behalf of the central bank -- became very active and rushed to buy US dollars," the dealer said.

"That immediately sent the currency through the 35.00 psychological level, catching all of us by surprise."

Still, Chou A-ting (周阿定), head of the central bank's foreign exchange department, said the "bank has never sought to steer the NT dollar downward."

James Yang, chief dealer at J.P. Morgan Chase and Co, said further declines could be in the offing, though he declined to say by how much.

"The Taiwan dollar may fall further in a gradual manner, as the fundamentals of the economy have not changed and a depreciation of the currency will lead to more exports for the local economy," Yang said.

"The central bank has already let the currency fall and now it's a matter of extent."

If the economies of Japan and South Korea are any measure, the NT dollar may have further room to drop. The yen is down roughly 15 percent over the past 12 months, while the won had shed more than 16 percent of its value.

The NT dollar closed at 34.976 yesterday, slightly stronger than 35.050 on Wednesday.

In related news, Taiwan may join Singapore in reporting negative economic growth in the second quarter to June, a report yesterday quoted one of Taiwan's top economic planners as saying.

The government has forecast second quarter economic growth of 3.26 percent from a year earlier but Council for Economic Planning and Development Chairman Chen Poh-chih (陳博志) said negative growth was possible, Chinese-language media reported.

"Taiwan's situation is very worrisome," Chen said, given that Singapore has a more developed service sector than Taiwan.

The Singapore economy -- one of Asia's strongest -- has fallen into recession after reporting two consecutive quarters of quarter-on-quarter contraction, the city-state government data showed.
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