The central bank is confident it can keep the New Taiwan dollar stable even if the US Federal Reserve raises its key interest rates at a meeting scheduled for tomorrow and Wednesday.
The bank said yesterday that a stronger US dollar resulting from a rate hike by the Fed has more or less been factored in by global financial markets, but it would monitor the markets’ response to the Fed’s decision.
While the value of the NT dollar is determined by the market, the bank said it is capable of maintaining the stability of the currency.
On Friday, the NT dollar closed at NT$31.86 against the US dollar, marking a 1.57 percent drop since the beginning of October, as foreign investors continued to repatriate funds based on the strength of the greenback.
However, Lin Hui-ying (林慧瑛), president of Taiwan’s National Association of Small and Medium Enterprises (中小企業協會), and Lin Por-fong (林伯豐), chairman of the Chinese National Association of Industry and Commerce (工商協進會), said the central bank should push the NT dollar down to between NT$33 and NT$33.5 against the US dollar to help local exporters become more competitive against their international peers.
However, the Ministry of Economic Affairs has expressed concern over the volatility of the NT dollar, in view of an expected escalation in currency depreciation competition in the region.
The ministry said it would keep a close watch on whether Taiwan’s export-oriented competitors depressed their currencies, and advised local exporters to prepare strategies for currency volatility.
The ministry also said that a rate hike by the Fed could compromise US economic growth and drag down demand from the US market, which in turn would affect Taiwan’s exports.
If US president-elect Donald Trump follows through on his pledge to initiate a huge infrastructure rebuilding plan, the ministry said that it might boost inflation and speed up the pace of the Fed’s rate hike cycle.
A Wall Street Journal poll of economists last week put the US federal funds rate at an average of 1.26 percent by December next year, implying four rate increases.
A Reuters poll projected three rate increases.
Wu Ming-huei (吳明蕙), head of the National Development Council’s department of economic development, said that it remains to be seen how Trump would implement his economic policies when he takes office next month.
Wu said that with its stable economy, Taiwan is likely to withstand the effects of expected changes in the US economy.
The US economy posted 3.2 percent year-on-year growth in the third quarter, beating forecasts of a 2.9 percent increase and registering its best performance in two years, while the US’ jobless rate dipped to 4.6 percent last month, its lowest since August 2007, presenting further evidence of an improving domestic economy.
In light of the indicators of a strengthening US economy, the Fed is expected to hike rates.
An increase in US interest rates would boost the US dollar, which would prompt a greater outflow of foreign funds from Asia and might cause volatility among regional currencies, including the NT dollar, analysts said.
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