Central bank Governor Perng Fai-nan (彭淮南) yesterday vowed to halve the amount of speculative funds parked in the local money market to NT$150 billion (US$4.87 billion) to safeguard the nation’s economic growth.
The amount of hot money dropped by NT$84 billion to below NT$300 billion after the government introduced a number of measures, including a 30 percent cap on foreign investment in government bonds, Perng told legislators.
“The amount of speculative funds will continue to decrease. The central bank aims to cut hot money [parked in the nation] by half to NT$150 billion,” Perng said, adding that the bank was satisfied with the efficacy of its measures to contain short-term capital inflows.
PHOTO: FANG PIN-CHAO, TAIPEI TIMES
EFFICACY
On Nov. 9, the Financial Supervisory Commission announced that foreign investors were no longer allowed to invest more than 30 percent of their funds in local government bonds and money-market products with maturities of one year or less.
Massive capital inflows have caused volatility in the foreign-exchange markets of emerging economies, including Taiwan, Perng said, adding that the local currency had to remain flexible to help mitigate the impact of volatile capital movements.
“Flexible exchange rates could absorb external shocks, just like the willows swaying in a strong wind without breaking their branches,” Perng said. “The central bank will allow more flexibility in the New Taiwan dollar to absorb foreign liquidity.”
Several Asian and Latin American countries, including Thailand and Brazil, have adopted tax measures to deter hot money inflows and prevent potential asset bubbles after the US’ quantitative easing measures drove a further influx of capital to their markets earlier this month.
Perng said financial authorities had not decided yet whether to slap a levy on speculative funds, but added that the central bank would continue to monitor the financial market and decide if a management fee on foreign capital inflows was required.
NO BUBBLE
“Taiwan will not see an asset bubble next year,” Perng said.
The governor was responding to a question by Chinese Nationalist Party (KMT) Legislator Alex Fai (費鴻泰) on whether the government would impose a management fee on speculative funds if the amount of hot money increased to NT$400 billion.
Deputy Minister of Finance William Tseng (曾銘宗) also told legislators that the ministry would “cautiously study” the feasibility of imposing such fees if hot money inflows severely affected exchange rates.
Following North Korea’s recent bombing of a border island with South Korea, Perng said Taiwan’s capital flows had “changed little,” and that the bank was “prepared” to maintain market stability if the conflict escalates.
At its close in Taipei trading, the NT dollar rose NT$0.03, or 0.1 percent, to NT$30.80 against the US dollar, Taipei Forex Inc’s data showed. The local currency has risen almost 5 percent in the past year.
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