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.
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