The nation’s foreign exchange reserves last month stood at US$539.04 billion, a drop of US$4.28 billion from a month earlier, after 21 consecutive months of growth, the central bank said yesterday.
The central bank attributed the decline to capital outflows caused by foreign portfolio managers, mutual funds and domestic life insurers after 10-year US Treasury yields rose above 1.7 percent and the US dollar index gained 2.59 percent.
Fund outflows reached US$8.9 billion and foreign portfolio managers cut their holdings in local shares by NT$150 billion (US$5.28 billion), mainly in heavyweight tech plays, data compiled by the Financial Supervisory Commission and the Taiwan Stock Exchange showed.
The increase in US Treasury yields raised concerns about inflation risks that might drive global central banks to reverse loose monetary policy earlier than expected, prompting investors to adjust portfolios to pursue better yields, analysts have said.
That would explain why mutual funds and domestic life insurance companies also contributed to fund outflows, the central bank said.
It said that it had to step in and sell US dollars to stabilize the New Taiwan dollar.
Other reserve currencies weakened against the US dollar and weighed on the overall foreign exchange reserve balance, the central bank said.
However, a series of changes enabled Taiwan to overtake India as the world’s fourth-largest holder of foreign exchange reserves, it added.
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