Taiwan's Central Bank Says Will Step in Market If Currency `Overshoots'
Taiwan’s central bank said it will step into the foreign-exchange market when the local dollar “overshoots,” in an echo of concerns across emerging nations that surging currencies threaten exports and financial stability.
“The Taiwan dollar exchange rate is in principle determined by the market, but if irregular factors, such as short-term, big-volume fund flows and seasonal issues, cause the currency to overshoot and lead to disorder, the central bank will maintain order in the foreign-exchange market,” Governor Perng Fai-nan said in a report released today in Taipei ahead of a parliamentary audit.
Emerging economies have countered criticism that they are restraining their currencies to aid exports by complaining that near-zero U.S. interest rates are encouraging investors to target their markets. Capital flooding into Asia could lead to excessive exchange-rate moves, asset bubbles and financial instability, Dominique Strauss-Kahn, the head of the International Monetary Fund, said in Shanghai yesterday.
“Hot money” is the common factor moving currencies of emerging markets and the central bank will monitor foreign- investor flows into deposit accounts, Perngsaid Sept. 30.
The Taiwan dollar fell 0.1 percent to NT$30.87 against its U.S. counterpart as of 2:55 p.m. local time today, according to Taipei Forex Inc. The currency has risen 2.7 percent in the past month.
The local dollar “isn’t cheap” and currency appreciation can cause companies to shift factories overseas, central bank researcher Lee Jung-chien wrote in an article posted on the monetary authority’s website today.
Taiwan raised borrowing costs in September for the second time this year and said it will try to prevent real-estate speculation after a jump in home prices fueled concern the island’s economic recovery may stoke a property bubble.
Housing market transaction volumes have declined since June, Perng said in today’s statement.
The central bank has used “moral suasion” on 16 commercial lenders to ensure rules are followed for loans using vacant land as collateral, and mortgage curbs introduced in June are yielding results, the governor also said.
To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
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