Taiwan’s forex reserves drop by US$1.22 billion

SLIGHT RETREAT:
The nation remains the world’s fifth-largest holder of foreign exchange reserves, despite the first retreat in 8 months, an official said

• By Crystal Hsu / Staff reporter

Taiwan’s foreign exchange reserves declined by US$1.22 billion to US$548.77 billion last month, the first retreat in eight months, due primarily to capital flight and interventions by the central bank to stabilize the local currency.

Foreign outflows totaled US$12 billion, accounting for a 2.05 percent fall in the New Taiwan dollar versus the US dollar, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) told reporters.

Local life insurance companies also contributed to the trend, as they pursued higher returns in overseas markets, Tsai said.

Photo: Kelson Wang, Taipei Times

Global financial institutions are re-evaluating their investment portfolios and making adjustments in the hope of taking advantage of interest rate increases in the US, after the US Federal Reserve announced its intention to raise interest rates in every single policy meeting this year to curb inflation.

Other central banks have followed suit for similar reasons.

The greenback gained 0.75 percent, the Australian dollar picked up 4.18 percent and the Canadian dollar gained 2.16 percent, Tsai said.

By contrast, the euro weakened 0.47 percent, the yuan softened 0.7 percent, the British pound dropped 2.27 percent and the yen shed 5.8 percent, the official said.

Taiwan’s central bank cut its US dollar holdings to meet demand and stabilize the local foreign exchange market, Tsai said, adding that the market was not dominated by one-sided sell-offs.

The effects of capital flight on Taiwan’s imported inflation are not as serious as international crude oil price volatility, the official said.

Crude prices recently fell to US$100 per barrel, from US$120 per barrel last month, due to oil reserve releases, equivalent to a correction of 15 to 20 percent, which helped mitigate the effects of the weaker NT dollar, Tsai said.

Taiwan remains the world’s fifth-largest foreign exchange reserve holder after China, Japan, Switzerland and India, despite the retreat, he said.

Stocks and debts held by foreign investors dropped to a 12-month low of US$677.2 billion mainly due to price corrections, Tsai said, adding that it is common for funds to move around the world in the pursuit of better returns.