The central bank yesterday rejected criticism of its monetary policy from a former central bank official saying that the accusations were untrue and that the central bank has been trying to keep the New Taiwan dollar from either overshooting or being undervalued to safeguard the nation’s economic growth and financial stability.
The central bank’s comments came after Shea Jia-dong (許嘉棟), chairman of the Taiwan Academy of Banking and Finance (台灣金融研訓院) and former central bank deputy governor, said on Friday that the central bank, tasked with driving the nation’s exports and economic growth, focused only on curbing the appreciation of the NT dollar while ignoring the fact that a weak local currency would hurt the profitability of Taiwanese banks.
Shea also said the central bank’s long-term policy of keeping key interest rates low has squeezed the spread between the central bank’s benchmark rates and banks’ lending rates and thereby cut banks’ profitability.
Shea was deputy governor at the central bank from 1996 to 2000.
The central bank said in a statement that the movement of the local currency was closely linked to foreign fund managers’ buying and selling of local stocks as they own about 30 percent of local stocks by market value. It added that South Korea faces a similar situation.
Demand for the US dollar increases when foreign investors have to sell local shares as they need to send the proceeds overseas in US dollars which, in turn, leads to a weak NT dollar, the central bank said.
Data showed the local currency has dropped 4.45 percent against the US dollar since Sept. 1, during which time foreign fund managers sold a net total of US$2.25 billion local shares, according to the central bank’s statement.
The South Korean won dropped at a faster pace, 9.58 percent, in the same period, while foreign investors unloaded fewer of the country’s stocks, worth only US$1.2 billion.
This was evidence that Shea’s “accusation is groundless,” the central bank said in the statement.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
RSS