The nation’s foreign exchange reserves last month picked up US$6.44 billion to a record US$567.52 billion, ending three consecutive months of retreat, as global funds regained interest in local shares and inflated the local currency, the central bank said yesterday.
Foreign fund inflows reached US$8 billion, prompting the central bank to intervene to smooth out volatile capital flows to maintain an orderly foreign exchange market, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said.
Tsai said he was not sure if the fund movements would be sustainable, but they likely had to do with market expectations that the monetary tightening cycle in the US is over, which would be favorable to Taiwan’s exports.
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About 80 to 90 percent of analysts believe the US Federal Reserve would embark on preventive interest rate cuts by June next year to support the economy now that inflationary pressures have tapered off, Tsai said.
As a result, currencies worldwide gained value against the greenback, with the British pound rallying 4.56 percent, followed by the Australian dollar’s 4.54 percent advance and the New Taiwan dollar’s 3.71 percent increase, Tsai said.
That also probably explained why foreign portfolio managers raised net holdings in local shares by more than NT$200 billion (US$6.35 million) last month and the central bank had to step in several times to slow the local currency’s volatility, he said.
The rapid appreciation in the NT dollar would create foreign exchange losses for local exporters.
Dividend and interest income also shored up Taiwan’s foreign exchange reserves, Tsai said.
The nation remains the world’s fourth-largest holder of foreign exchange reserves after China, Japan and Switzerland.
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