The New Taiwan dollar is likely to gain more ground as an estimated US$20 billion in stock buying funds flow into the country this year, financial analysts said yesterday.
"NT$29 to US$1 is a reasonable projection," C.C. Lee, banking analyst for the Capital Securities Corp, said yesterday. "We are likely to see the appreciation peak after the presidential election and after Morgan Stanley Capital International hikes its weighting" of Taiwan stocks in its indexes.
The NT dollar ended yesterday at NT$30.620 against the greenback, up NT$0.17 from the day before. Volume was US$770 million.
However, "the [NT dollar] is not likely to go back to its level before the Asia financial crisis in 1997 [which was NT$27.5]," Lee added. "Except for Japan, countries such as Thailand, Singapore and South Korea haven't seen their currencies return to pre-crisis levels."
Chen Yuan-pao (
"At least for the first half year that covers the presidential election, the central bank will take into account how much pressure exporters can handle and make necessary adjustments," Chen said.
According to local reports yesterday, the Central Bank of China (
According to Lee, much of the optimism is owing to Taiwan's economic performance, which is expected to accelerate this year amid an upturn in the global economic cycle.
Not only is output expected to increase, but domestic investment and consumption is also expected to benefit.
"Compared to China, Korea and Japan, Taiwan is a better choice, with an estimated growth rate of 6.2 percent," Chen said.
But with the huge inflows of foreign funds into Taiwan, analysts are concerned that inflation may begin to take hold with so many dollars chasing too few goods.
Wu Chung-shu (吳中書), currency researcher at the institute of economics at Academia Sinica, said inflation was not likely a problem, at least in the short-term.
"Compared to other countries, the New Taiwanese dollar is not overvalued," Wu said.
Wu said that growth of the M2 money supply, which refers to the total amount of cash in the financial system, is being kept within the Central Bank's targeted range of between 6 percent and 11 percent.
In addition, the central bank may also consider following the international pattern of raising interest rates to cool over-heating stock markets.
Wu said such a move would make owning Taiwanese stocks less attractive to foreign investors, thus slowing foreign fund inflows.
"Foreign funds can leave Taiwan anytime they want, and if the market is unprepared, the resulting downturn will make it difficult for businesses to raise funds," Wu said.
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