Central bank Governor Yang Chin-long (楊金龍) yesterday said the bank would not impose foreign-exchange controls to curb capital outflows before his tenure ends in February next year.
Yang made the announcement during a question-and-answer session at the legislature after his comments on foreign capital management on Tuesday sparked fears that the bank could take drastic measures to limit capital outflows.
The bank has not adopted capital controls since 1997, when the Asian financial crisis broke out.
Photo: CNA
Foreign investors have remitted NT$40 billion to NT$50 billion (US$1.26 billion to US$1.57 billion) after unloading their local stock holdings, Yang told Chinese Nationalist Party (KMT) Legislator Lin Te-fu (林德福) during the session.
“It is impossible to resist floods. Dredging would work better [to reduce flooding],” Yang said, referring to foreign capital flows. “When you face headwinds, you have to make use of your strength.”
Asked by KMT Legislator Lai Shyh-bao (賴士葆) whether the bank would impose capital controls, Yang said: “Not during my tenure.”
The bank would not impose capital controls in the near term, given Taiwan’s healthy financial fundamentals, including strong foreign-currency liquidity totaling US$691.4 billion, a healthy trade surplus, low foreign debt and high foreign-currency deposits of US$270 billion, Yang said.
He attributed the capital outflows to repeated rate hikes by the US Federal Reserve, saying foreign investors are adjusting their asset portfolios for better returns.
The fund outflows have caused the New Taiwan dollar to fall sharply against the US dollar, as demand for the greenback soared.
The situation is manageable, as the bank had about NT$549 billion in foreign-exchange reserves as of June 30, more than sufficient to prevent the NT dollar overshooting and avoid a financial crisis, Yang said.
Taiwan’s central bank spent NT$8.25 billion to prop up the local currency in the first six months of this year, Yang said.
The NT dollar has plunged more than 15 percent since the beginning of this year. It closed at NT$31.847 against the greenback yesterday.
The central bank is closely monitoring foreign capital movements and overseas fund managers are required to report large remittances to the bank beforehand, Yang said.
However, they are still free to move their funds, he said.
Taiwan weathered the Third Taiwan Strait Crisis in 1995 and the global financial crisis in 2008 without capital controls, Yang said.
No similar measures were taken when China launched military drills around Taiwan last month, he added.
Asked when the central bank would stop raising key interest rates, Yang said that it depends on the inflation rate.
If the consumer price index improves to a manageable level of 2.95 percent this year and falls below 2 percent next year or below the 1.88 percent forecast by the central bank, it might “consider pausing” rates hikes, Yang said.
As there are greater macroeconomic uncertainties, the bank is closely monitoring all economic data and collecting information for its directors to make a decision in their next policy meeting in December, he said.
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