The New Taiwan dollar yesterday weakened against the US dollar, losing NT$0.385 to close at the day’s low of NT$32.465, after the Chinese central bank further cut the yuan’s reference rate, sending regional currencies into another tailspin.
Massive selling by foreign institutional investors on the local equity market added downward pressure on the NT dollar, pushing the currency down 1.18 percent to its weakest level since June 2010, according to Taipei Forex Inc data.
The currency on Tuesday declined 1 percent.
Photo: CNA
According to the Taiwan Stock Exchange, foreign institutional investors yesterday sold a net NT$8.79 billion (US$270.75 million) in shares, sending the TAIEX down 1.32 percent.
Analysts said the yuan’s depreciation has sparked more currency competition in the region.
The NT dollar could fall further as long as China continues to depress its currency to protect Chinese exporters and boost its economy, they said.
As the falling NT dollar led foreign investors to move their funds out of the nation, reducing demand for the currency, the central bank is quietly easing monetary conditions to spur growth and prevent capital flight.
While the central bank has kept benchmark borrowing costs unchanged since 2011, it cut the rate on overnight certificates of deposit for a second day yesterday.
The bank said it would pay less on 14-day debt at a sale scheduled for tomorrow.
“The move reflects that fundamentals are poor,” Ta Chong Bank Ltd (大眾銀行) economist Woods Chen (陳森林) said.
“The central bank is doing something, but it does not want to cut the benchmark rate, but the effects are similar,” Chen said.
The measures, which are aimed at boosting cash supply, came after second-quarter growth slowed to the least since 2012 and exports shrank for a sixth consecutive month last month.
Beijing’s unexpected decision on Tuesday to cut the yuan’s reference rate by a record amount roiled global financial markets and risks exacerbating outflows from Taiwan, as a weaker currency makes local assets less attractive.
“With Taiwan’s dollar following the yuan in depreciating massively, there is concern foreign investors will leave,” Fubon Financial Holding Co (富邦金控) economist Rick Lo (羅瑋) said.
“The central bank wanted to provide adequate liquidity in the market at this time,” Lo said.
The central bank yesterday lowered the rate on overnight certificates to 0.384 percent, after reducing it to 0.386 percent a day earlier in its first such cut since 2012, according to people familiar with the matter.
The one-day debt is sold daily to adjust cash supply and the rates and volumes are not released publicly.
The bank is to sell 14-day certificates at 0.47 percent this week, compared with 0.5 percent when it last sold debt of that maturity last month.
Lowering the short-term certificate of deposit rate is “equivalent to a policy-rate cut,” Lo said.
The central bank will “flexibly adjust” open-market operations according to market changes, Chen E-dawn (陳一端), director-general of the banking department, said by telephone yesterday.
The nation has kept its policy rate at 1.875 percent for a record 16 quarters amid low inflation. Speculation about a cut mounted after second-quarter growth came in at 0.64 percent, missing estimates of all economists surveyed by Bloomberg.
The next review is scheduled for next month.
“The central bank might have cut the rates in open-market operations to help push down the exchange rate,” said Ma Tieying (馬鐵英), an economist at DBS Group Holdings Ltd in Singapore.
“Psychologically, it might lead to expectations for a policy rate cut, but it does not necessarily mean there will be one,” Ma added.
Additional reporting by CNA
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