Taiwan’s foreign exchange reserves last month rose by US$466 million to a record US$548.87 billion, as exporters offloaded US dollars and local investors raised stakes in US dollar-based assets ahead of anticipated interest rate hikes, the central bank said yesterday.
The nation’s foreign exchange reserve rose for the sixth consecutive month thanks to robust demand from companies and organizations around the world for Taiwan-made electronics needed to drive digital transformation, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said.
Strong exports explain why the New Taiwan dollar appreciated in the past two years, Tsai said, adding that US Federal Reserve’s money-printing program has weighed on the US dollar.
Photo: Tyrone Siu, Reuters
Taiwan’s central bank asked exporters before the Lunar New Year to sell their US dollar possessions at different times to avoid a spike in the local currency’s valuation, Tsai said.
Profitable Taiwanese companies normally distribute year-end bonuses prior to the Lunar New Year, putting appreciation pressure on the NT dollar.
Tsai said the central bank has made the plea throughout the year.
The latest gain in foreign reserves was also linked to the central bank’s management skills, the official said, after the euro softened 1.62 percent, the British pound shed 0.67 percent, the Japanese yen lost 0.27 percent and the Chinese yuan gained 0.13 percent.
“In all, the foreign exchange market saw largely balanced supply and demand,” Tsai said.
Local investors have begun displaying more interest in US dollar-denominated assets after the Fed and other major central banks turned hawkish, Tsai said.
Such movements gain momentum when 10-year US Treasury yields rise above 1.75 percent, he added.
The yield is approaching 2 percent after the Fed last month indicated plans to raise interest rates by 25 basis points next month at the earliest to battle inflation.
Global fund realignments accounted for bond and stock market corrections last month, with wild volatility likely to persist for a short while, Tsai said.
Taiwan last month registered US$1.83 billion of net capital outflows, after foreign portfolio managers remitted US$3.24 billion to Taiwan, but transferred US$5.06 billion of gains abroad, Tsai said.
Local shares, debt and local currency deposits held by foreign players totaled US$735.7 billion, or 134 percent of foreign exchange reserves, he said, adding that the ratio is acceptable.
Taiwan remains the world’s fifth-largest foreign exchange holder after China, Japan, Switzerland and India, the central bank said.
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