The central bank last year sought to stabilize the local currency with a net sale of US$13 billion amid massive fund outflows that weakened the New Taiwan dollar by 9.83 percent against the greenback, central bank Governor Yang Chin-long (楊金龍) said.
The interventions were necessary, as foreign portfolio managers aggressively cut holdings in local shares by NT$1.14 trillion (US$37.4 billion) to meet asset redeployment and fund redemption demand induced by the US Federal Reserve’s interest rate hikes to tame inflation, he said in a report released ahead of a meeting of the Legislative Yuan’s Finance Committee on Wednesday next week.
US bond yields spiked and stock prices tumbled amid monetary tightening, the report said.
Photo: CNA
As a result, US tech shares took a hard hit and the TAIEX fared similarly, as many firms are involved in the global supply chains of US technology titans, it said.
Foreign funds realized capital gains and wired profit abroad, augmenting demand for the US dollar, it said.
The central bank had to step in to maintain the local foreign exchange market’s stability by selling US dollars valued at NT$8.25 billion in the first half and US$4.75 billion in the second half of last year, Yang said.
The foreign exchange interventions last year totaled about 1.7 percent of GDP, falling short of a 2 percent threshold the US Department of the Treasury uses as one of three criteria to judge whether trade partners engage in currency manipulation to gain unfair trade advantages.
The other two gauges are a trade surplus of at least US$20 billion with the US, and a current account surplus exceeding 2 percent of GDP.
Depreciation pressure on the NT dollar has mitigated this year, as foreign funds seemed to have regained an interest in local shares in lieu of a net purchase of US$8.2 billion as of Wednesday, Yang said, adding that the local currency increased 0.67 percent versus the greenback.
Yang had a dovish reading of inflation data after the consumer price index (CPI) last month increased by 3.04 percent and core CPI excluding volatile items advanced 2.98 percent.
The CPI could rise 1.94 percent this year, with analysts anticipating an increase of 1.4 percent to 2.6 percent, he said.
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