The nation’s foreign exchange reserves last month fell US$1.026 billion to US$565.467 billion, dropping for the first time this year, the central bank said yesterday.
As foreign capital fled, the central bank intervened to help maintain the local currency’s stability, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said.
Fund outflows were about US$9 billion after foreign institutional investors cut holdings in local shares by US$5.8 billion, as well as wired cash dividends and capital gains abroad, Tsai said.
Photo: Reuters
It is common for foreign portfolio managers to send cash dividends overseas in search of better returns if they are conservative about the local market, he said.
However, the TAIEX has been resilient despite an ongoing economic slowdown, thanks to investor enthusiasm for artificial intelligence and a high sales season for technology products, Tsai said.
The fund movements also had a lot to do with investment return expectations and economic outlook among other considerations, he said, adding that a robust US dollar and Taiwan’s poor exports helped weigh on the foreign exchange reserves.
The US dollar picked up 1.73 percent last month, helping account for the New Taiwan dollar’s 1.04 percent retreat, the euro’s 0.83 percent dip, the British pound’s 1.03 percent drop and the yuan’s 2.04 percent depreciation, Tsai said.
The central bank stepped in and sold the greenback to support the local currency, he said, adding that the intervention was the first this year.
The intervention in September last year was more pronounced, when foreign exchange reserves shed more than US$4 billion, he said.
The US dollar makes up 80 percent of Taiwan’s foreign exchange reserve, while the yuan holds a certain share to meet cross-strait trade needs, he said.
The US Federal Reserve is widely expected to keep interest rates on hold later this month and might cut rates next year based on its heavily tracked “dot plot,” a graphic that indicates how much each Fed official thinks it would cost to borrow money, Tsai said.
The chart points to an ultimate rate next year that is lower than the current level, he said.
Still, Taiwan remains the world’s fifth-largest holder of foreign exchange reserves after China, Japan, Switzerland and Russia.
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