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Taiwan Scales Back Exchange-Rate Intervention, Traders Say

The Central Bank of the Republic of China (Taiwan) stands in Taipei. Photographer: Maurice Tsai/Bloomberg
The Central Bank of the Republic of China (Taiwan) stands in Taipei. Photographer: Maurice Tsai/Bloomberg

Taiwan’s central bank is scaling back its intervention in the currency market, which is aimed at limiting appreciation, as the prospect of U.S. monetary stimulus being reined in supports the greenback, traders say.

The monetary authority has sold the local dollar in the run-up to the close on most days for more than a year and the amounts involved are falling, they said, asking not to be identified. The exchange-rate impact is moderating, with the 4 p.m. closes in Taipei over the past three days having been less than 0.1 percent weaker on average than levels recorded around three minutes earlier, Taipei Forex Inc. prices show. The gap averaged 0.6 percent in the month through July 8.

The Taiwan dollar has been little changed against its U.S. counterpart since May 22, when the Federal Reserve indicated it may pare stimulus that has fueled demand for emerging-market assets. South Korea’s won declined 0.8 percent in the same period, Indonesia’s rupiah weakened 2.4 percent and India’s rupee slid 7.4 percent, Asia’s biggest loss. India and Indonesia intervened to support their currencies in the past month.

“I don’t think the central bank’s goal to maintain the relative stability of the currency has changed,” said Frances Cheung, a Credit Agricole CIB senior strategist in Hong Kong. “It’s just it seems a good time to be a bit more hands off.”

Taiwan Dollar

Taiwan’s dollar rose 0.44 percent to NT$29.952 in Taipei, earlier touching a three-week high of NT$29.85. It was trading 0.48 percent stronger one minute before the 4 p.m. close.

The currency’s 2.7 percent decline this year compares with 5.2 percent for the won and 13 percent for the yen. Electronics are Taiwan’s biggest export and local companies including smartphone maker HTC Corp. and Taiwan Semiconductor Manufacturing Co., the world’s largest contract manufacturer of chips, compete globally against rivals from South Korea and Japan.

Taiwan’s exchange rate affects importers as much as exporters, and policy makers won’t depreciate the currency along with the yen at the expense of consumers, the central bank said in a statement on June 27. It will step in to maintain order in the currency market if “overshooting has caused disorderly movements,” the statement said.

Spencer Lin, director general of foreign exchange at the central bank, was not available to comment on exchange-rate policy after three calls were made today. The Taiwan dollar will weaken 0.2 percent to NT$30 in the remainder of 2013, according to the median estimate of analysts surveyed by Bloomberg.

‘Not Immune’

Taiwan’s vulnerability to the Federal Reserve tapering stimulus is lower than most Asian peers as it hasn’t had large capital inflows in the past four years, Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore, wrote in a research report on July 9.

“Taiwan is not immune to the risk of capital outflows triggered by higher U.S. rates, but compared to other countries in the region, Taiwan’s vulnerability is low,” Ma wrote. “As the potential size of foreign outflows triggered by the Fed’s policy normalization is not large, the depreciation pressures on the Taiwan dollar should not be severe either.”

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