Bloomberg News

Taiwan Central Bank Signals It’s Against Currency Weakening

October 05, 2011

(Updates with inflation data in seventh paragraph.)

Oct. 5 (Bloomberg) -- Taiwan signaled it won’t push for a weaker currency even as slowing global growth puts pressure on policy makers to protect exports. The island’s dollar rose.

The central bank “doesn’t favor Taiwan dollar depreciation,” Governor Perng Fai-nan said in reply to questions from lawmakers in Taipei today. Taiwan’s exchange rate is determined by market supply and demand, and the island is facing less “hot money” pressure, he said.

Asian stocks have fallen in recent months as Europe’s debt crisis and a struggling U.S. economy dimmed the outlook for the region’s exporters. Taiwan’s central bank left its benchmark interest rate unchanged at 1.875 percent last week, ending five straight quarters of increases as regional policy makers seek to protect their economies from a faltering global recovery.

Taiwan’s dollar gained, snapping a four-day loss, on speculation exporters took advantage of recent declines to repatriate earnings at a more favorable exchange rate. The currency rose 0.2 percent to NT$30.623 at the 4 p.m. local time close.

“Taiwan dollar’s weakness is likely to continue in the near term because of the real demand for U.S. dollars from foreign investors and Taiwanese firms,” said Laura Ho, an economist at Grand Cathay Services Corp. in Taipei.

Slowing Global Expansion

Global growth is slowing and price gains are easing after peaking in the third quarter, Perng said today. Emerging markets can’t decouple from developed economies, he said.

Taiwan’s consumer prices increased 1.35 percent in September from a year earlier, compared with a 1.34 percent advance in August, a report showed today. That was less than the 1.4 percent median of 16 estimates in a Bloomberg News survey.

The Taiex stock index has tumbled about 22 percent this year, as a global stocks rout wiped almost $9.4 trillion off shares worldwide in the same period.

Foreign investors sold Taiwan stocks in September, leading to capital outflows and a decline in foreign-exchange reserves, Perng said today. Still, Taiwan’s banking system has “healthy” liquidity, he said.

Taiwan hopes to sign a cross-strait yuan clearance agreement with China soon, Perng said, without giving further details. While the yuan will probably become a major international currency one day, the island won’t hold it in the foreign-exchange reserves for now as the mainland hasn’t opened its capital account, he said.

China won’t have a “hard landing” as its economy is performing relatively well compared with the U.S. and Europe, Perng said. He said the island’s policy makers will closely monitor economic data from the mainland, its largest trading partner.

--With assistance from Sunil Jagtiani in Singapore. Editors: Stephanie Phang, Shamim Adam

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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