The New Taiwan dollar last quarter weakened 3.51 percent against its US counterpart as foreign funds continued to pull out of the local market after the US Federal Reserve announced it would keep interest rates higher and for longer to combat inflation, the central bank said in a report released yesterday.
The report came a day before central bank Governor Yang Chin-long (楊金龍) is to brief the legislature’s Finance Committee on its operations and budget preparation for next year.
As of Thursday last week, the local currency had declined 4.83 percent so far this year, but stayed relatively stable compared with the yen, yuan and won, the report said.
Photo: CNA
The central bank spent a net US$880 million in the first half of this year to support the NT dollar, it added.
The NT dollar fell NT$0.091 to close at NT$32.328 per US dollar in Taipei trading yesterday, its weakest since July 7, 2016, central bank data showed.
“Currency market stability is important for Taiwan in light of its heavy reliance on foreign trade,” the report said.
The exchange rate of the NT dollar has long been less volatile than major currencies, favorable for local firms to quote prices and helpful in maintaining economic growth, it said.
Ongoing global fund movements have much to do with market expectations of a soft landing for the US economy and the Fed’s hawkish rhetoric about holding interest rates at high levels for longer to facilitate returning consumer prices to its 2 percent target.
Tight monetary policy accounted for a strong US dollar, euro and British pound, as well as fund outflows from Asian markets where inflation is not problematic and central banks assign more importance to economic growth, it said.
The central bank said it opted to keep interest rates unchanged in June and last month on the belief that Taiwan’s consumer price index (CPI) would slow in the second half of this year and return to the 2 percent range next year.
The CPI and core CPI — which excludes volatile items such as fruit, vegetable and energy prices — might rise to 2.22 percent and 2.44 percent respectively this year, before cooling to 1.83 percent and 1.73 percent next year, it said.
Net interventions for the past 12 months totaled US$5.63 billion, or about 0.76 percent of Taiwan’s GDP, the central bank said.
By contrast, Taiwan’s economic performance has been disappointing and would lead to a negative output gap this year and next year, it said.
The nation accumulated US$565.5 billion of foreign exchange reserves in the first eight months, up US$569.8 billion from the end of last year and sufficient to meet exchange needs, it said.
The central bank said it expects to contribute NT$200 billion to the national treasury in the 2024 fiscal year, marking an increase of NT$19.3 billion from the previous fiscal year.
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