Taiwan’s central bank appears to have sold its local currency in the last hour of trading as much as 75 percent of the time in the first seven months of the year, according to the US Department of the Treasury.
For the first time since the country’s monetary authority started weakening the local currency in the run-up to the close more than four years ago, the Treasury highlighted the tactic and its impact in its semi-annual report on exchange-rate policies.
Total intervention has increased this year, averaging US$1.3 billion per month from US$900 million last year, the Treasury estimated.
End-of-day intervention has the impact of “signaling to the market the central bank’s targeting of a given closing level for the exchange rate,” the Treasury said in the report released overnight. “Market expectations of regular intervention, particularly at certain values or in response to large transactions, can also shape the pattern of capital flows and obscure the price-clearing mechanism of the exchange rate.”
The New Taiwan dollar’s abrupt declines toward the end of the day are part of the central bank’s arsenal of unofficial tools to keep speculators at bay and support exporters.
With the NT dollar posting Asia’s biggest gain in the first half, the authority stepped up intervention and occasionally asked traders to cancel orders. Such actions, none of which are disclosed, help stem appreciation without the expense of buying the US dollar.
Taiwan’s consumer prices have fallen year-on-year every month of this year apart from last month, while economic growth slowed to the least since 2012 in the second quarter. That has bolstered the case for the central bank to seek a weaker currency to boost exports.
“Given the recent weakness in Taiwan’s CPI [consumer price index] and GDP, I doubt there will be any change in the approach to Taiwan dollar intervention,” Sydney-based Westpac Banking Corp currency strategist Sean Callow said. “Given Taiwan isn’t in the G20, there’s no obvious regular forum for the US to press the issue.”
The NT dollar has declined by an average of 0.46 percent in the last hour of trading this year, compared with 0.2 percent last year. It rose 2.5 percent against the US dollar in the year through June, the only Asian currency to record a substantial gain. The NT dollar has weakened 4.7 percent since then as a slowdown in China, the country’s biggest export market, worsened.
As in past reports, the Treasury asked Taiwan’s central bank to limit forays into the market to disorderly situations, and increase the transparency of reserve holdings and intervention.
The central bank’s official policy has always been that it would step into the market when there is excessive volatility and disorderly movements.
The Treasury probably pointed to the end-of-day intervention as a “stark example of Taiwan not following its officially published explanation of intervention,” Callow said.
Yesterday, the NT dollar closed 0.28 percent lower at NT$32.51 against the US dollar, according to Taipei Forex Inc data.
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