The New Taiwan dollar yesterday posted the biggest drop in a month against the US dollar after the central bank said in a statement a day earlier that it was “necessary” to curb the appreciation of the local currency as liquidity is flooding Asian and emerging markets.
At its close in Taipei trading, the NT dollar fell NT$0.053, or 0.17 percent, to NT$31.095, compared with a decline of NT$0.07, or 0.21 percent, on Sept. 7, when it closed at NT$32.01.
On Thursday night, the central bank issued a press release quoting Nobel prize-winning economist Joseph Stiglitz as saying that a “flood of liquidity” from the US Federal Reserve and the European Central Bank (ECB) was causing instability in foreign exchange markets, forcing Japan and Brazil to defend their exporters.
Ultra-loose monetary policies by the Fed and the ECB are throwing the world into “chaos” rather than helping global economic recovery, the bank’s release said, adding that recent actions by those countries to curb the strength of their currencies were “necessary.”
“This is a warning to the market that the central bank will not allow currency speculators to mess with the market,” Tarsicio Tong (湯健揚), a currency dealer at Union Bank of Taiwan (聯邦銀行), said by telephone.
While suggesting that it was “natural” for Asian countries to contain a rise in their currencies, the central bank noted that Brazil doubled a tax on foreign bond purchases on Monday, paving the way for its possible move to slap a Tobin tax on “hot money.”
Tong said that the market should remain cautious since the monetary policymaker might soon adopt more “drastic” measures to further control the surging inflows of speculative capital from Western markets.
The central bank underscored the recent appreciation of the NT dollar against the greenback by pointing out the spread of 4.6 percentage points between the yearly growth rate of imports priced in US dollars (12.74 percent) and that of imports priced in NT dollars (8.14 percent) in the first nine months of this year.
Nevertheless, under increasing pressure from the US on the appreciation of the Chinese currency, Tong said that the NT dollar will continue to trend up in the near future, even though growth will be limited due to the intervention of the central bank.
Meanwhile, the central bank yesterday raised the deposit reserve rate for both demand and fixed savings by local financial institutions to 0.193 percent and 0.934 percent, up from 0.178 percent and 0.855 percent, respectively.
This move was to reasonably reflect deposit costs of local lenders after the monetary regulator raised its policy rates by 0.125 percentage points for the second time this year last week.
The central bank yesterday also auctioned another NT$100 billion (US$3.24 billion) in 364-day certificates of deposit (CD) to further withdraw excess liquidity in the banking system, marking the seventh sale of such CDs this year.
These seven issuances, with a total value of NT$700 billion would be considered as tantamount to hiking the reserve requirement ratio by 2.72 percentage points, the central bank said.
Yesterday’s auction of CDs yielded an average interest rate of 0.715 percent with a bid-to-cover ratio of 3.22. That compared with an average interest rate of 0.624 percent from the sales on Sept. 10, which had a bid-to-cover ratio of 3.64.
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