Taiwan’s accounts last quarter registered a US$29.11 billion surplus on the back of improving exports, but capital outflows grew by US$29.19 billion, leaving the balance of payments (BOP) at a deficit of US$330 million, the central bank said yesterday.
It is the first BOP deficit since the third quarter of 2022, the central bank said, adding that its effort to slow the local currency’s depreciation against the US dollar contributed to the deficit.
The central bank said there is no need to worry about the difference between the capital outflows and current account surplus because it is quite small.
Photo: Ann Wang, Reuters
The rapid capital outflows also had to do with active purchases of US government and corporate bonds by local banks, life insurers and individuals on expectation that the US Federal Reserve (Fed) would cut interest rates later this year.
Interest rate cuts would boost bond prices.
The Fed has said it would cut rates when it is confident enough that inflation is headed toward its 2 percent target.
The US consumer price index last month grew 3.4 percent from a year earlier, but the Fed said it would not be considering interest rate hikes.
It is common for countries with current account surpluses to see capital outflows, because financial institutions need to digest idle funds and pursue returns, the central bank said.
Capital outflows also happen in Japan, Germany, Singapore and South Korea, the central bank added.
The high interest rates in the US make its government and corporate bonds safe and attractive investment targets, and the US dollar has benefited from global fund deployment, the central bank said.
At the same time, the deficit in the services account widened from US$2.17 billion to US$2.54 billion, as outbound travel increased and inbound tourist arrivals continued to leave much to be desired, the central bank added.
The number of Japanese tourists, for instance, have not returned to pre-COVID-19 pandemic levels, given the weakening of the yen, which makes overseas travel expensive for the Japanese, local hotels have said.
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