Taiwan’s foreign exchange reserves fall further in September following market intervention

Taipei, Oct 8 (CNA) Taiwan’s foreign exchange reserves fell further in September as the local central bank continued its efforts to limit the Taiwan dollar’s fall against the US dollar amid an aggressive round of rate hike by the Federal Reserve, according to the bank.

Data compiled by the central bank showed the country’s foreign exchange reserves at the end of September stood at $541.11 billion, down about $4.38 billion from the previous month, marking the biggest monthly decline in nearly 12 years.

The September figure was the lowest since April 2021, when Taiwan’s foreign exchange reserves also hit NT$541.11 billion.

Tsai Chiung-min (蔡炯民), head of the central bank’s foreign exchange department, said that although the central bank benefited from a return to portfolio management of foreign exchange reserves in September, the month’s figure fell further from August, marking the third consecutive month of decline after the bank intervened in the local foreign exchange market by buying Taiwan dollars.

Tsai said as the Fed acted aggressively to complete its rate hike cycle that drove the US dollar higher, sending ripples through global financial markets, the local central bank had to enter the market to smooth local currency volatility and maintain market order.

However, Tsai did not disclose how much market intervention cost the central bank in September.

In September, the Taiwan dollar fell NT$1.308 or 4.3% against the US dollar and without central bank intervention it would have fallen further.

Since March, when the Fed launched a rate-hike cycle to fight inflation, the US central bank has raised policy rates by 300 basis points, while the local central bank has raised rates by just 50 basis points. basis, claiming that Taiwan was not facing as much rapidly growing inflation as was the United States.

With a widening interest rate differential between the US and Taiwanese markets, foreign institutional investors rushed to withdraw their funds from the local US dollar-denominated asset market, which added downward pressure on the Taiwanese dollar. .

Taiwan was not an isolated case of having experienced a drop in its foreign exchange reserves. According to international media, Singapore’s foreign exchange reserves fell by US$3.3 billion in September, Switzerland’s by US$7.91 billion and Japan’s even plunged by US$54 billion. that their central banks have also jumped on the floor to support their respective currencies against a strong greenback.

As the market widely anticipates the Fed will continue its hawkish stance, which could lead to further turmoil in global markets, Tsai said he believes the central bank will be able to fend off market volatility.

By the end of September, the value of foreign investors’ holdings of Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits had fallen $91.2 billion from the previous month to 436 $.9 billion, a new low since July 2020, the central bank said.

Those holdings accounted for 81% of Taiwan’s total foreign exchange reserves, down sharply from 97% at the end of August, the central bank added.

Tsai said the declines reflected a plunge in local stock prices in September, when the Taiex, the benchmark weighted index on the Taiwan Stock Exchange, lost 1,679.86 points or 11.07% due to institutional selling. foreign.

The bank said it would maintain large foreign exchange reserves to ensure the stability of domestic financial markets and guard against any sudden movement of funds out of the country by foreign institutional investors.

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