Cathay Financial Holding Co (國泰金控) asked the central bank to raise interest rates next year, as the widening interest-rate differential between Taiwan and the US has increased the firm’s foreign-exchange (forex) hedging costs, president Lee Chang-ken (李長庚) said on the sidelines of an event in Taipei on Monday.
Since the US Federal Reserve is expected to continue rate hikes next month and into next year, the differential between the New Taiwan dollar and the US dollar will widen further, Lee said.
As the price of a forex swap agreement — a kind of contract that insurers use to hedge their positions — is determined by the interest-rate differential between the two currencies, when the differential expands, insurers have to bear higher costs, Lee said.
“So far we have been doing well in terms of hedging, but the costs are really high,” Lee said.
Based on Financial Supervisory Commission regulations, insurance companies are allowed to hold a special reserve to absorb forex losses on overseas investments in response to volatile global financial markets.
Lee said he is considering expanding the company’s special reserve to better manage forex risks and reduce hedging costs.
Local life insurers reported a combined NT$507.5 billion (US$16.42 billion) in hedging costs during the first 10 months of the year, with forex losses totaling NT$178.2 billion over the same period, the commission said last week.
Net forex losses this year might exceed NT$200 billion, which would be a record, it said.
The central bank has not changed its key interest rates since September 2016. However, there are too many funds with a lack of good investment targets, so demand for funds is not strong.
With interest rates remaining low, it has not only posed challenges for insurance companies, but also taken its toll on people who rely on interest income after retirement, Lee said.
Lee said he understands that Taiwan does not have much room for interest-rate hikes, but an increase of 0.25 percentage points would benefit such retirees, he added.
Cathay Financial is also looking for good targets to invest domestically, as they would pose no forex risks, Lee said.
Possible targets are related to the “five plus two” innovative industries or other start-ups, but the company would not invest in offshore wind farms, as it cannot fully understand the risks, he said.
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
RSS