The central bank is to launch special financial inspections on financial institutions, including local banks and foreign custodian banks, as part of efforts to curb speculative “hot money” inflows following a recent surge in the New Taiwan dollar, a central bank official said yesterday.
“The central bank will conduct on-site inspections to ensure that capital inflows are for investments in local stocks and not for currency speculation,” cable TV station USTV quoted Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) as saying at a central bank news conference in Taipei.
After foreign capital is remitted into Taiwan and converted into NT dollars, it should be used to purchase local stocks within one week at the latest and may not be kept on the sidelines for a long time, or it risks being flagged as currency speculation by the central bank, Tsai said, without specifying the maximum duration for which funds can remain idle in NT dollar-denominated accounts before drawing scrutiny.
Photo courtesy of the central bank
The central bank is not just concerned about the inflow of hot money, but is also monitoring whether NT dollar foreign exchange forward contracts by importers and exporters are being transacted based on genuine business needs, he added.
The NT dollar yesterday closed down NT$0.135 at NT$30.180 against the US dollar in Taipei trading. The local currency appreciated NT$1.065 against the greenback last month, before accelerating on Friday and Monday to post a gain of NT$1.872 over the two sessions, central bank data showed.
Market expectations for further appreciation of the NT dollar had largely subsided by yesterday. Tsai said.
Photo: CNA
“Judging from today’s market, we can already feel that the disorder has come to an end and the market has returned to a relatively rational situation,” he said.
Tsai made the remarks after the central bank released the nation’s foreign exchange reserve data for last month, which showed an increase of US$4.81 billion, or 0.83 percent, from the previous month to US$582.832 billion.
The figure marked a new record high for Taiwan’s foreign exchange reserves, reflecting the central bank’s purchase of US dollars last month to help maintain orderly NT dollar movements within a manageable range.
In addition, returns from the bank’s management of reserve assets and exchange rate movements of other reserve currencies against the US dollar also contributed to the rise in foreign exchange reserves, the central bank said.
As of the end of last month, the market value of securities investments and deposits held by foreign portfolio investors totaled US$721.9 billion, equivalent to 124 percent of the nation’s foreign exchange reserves, compared with US$708.9 billion, or 123 percent, at the end of the previous month, the central bank said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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