Forex reserves dip to 7-month low as central bank sells greenbacks

Dayana Jones

Taipei, May 5 (CNA) Taiwan’s foreign exchange reserves at the end of April fell to the lowest in seven months as the central bank continued to cut its holdings of U.S. dollars in a bid to prevent further weakness of the local currency, the central bank said Thursday.

Data compiled by the central bank showed the country’s forex reserves as of the end of April totaled US$545.06 billion, down about US$3.71 billion from a month earlier, marking the second consecutive month of month-on-month decline due to interventions in the local currency market.

Forex reserves at the end of April fell to the lowest level since September 2021, when the figure stood at US$544.90 billion.

Speaking to reporters, Tsai Chiung-min (蔡炯民), head of the central bank’s Foreign Exchange Department, said the bank sold U.S. dollars for the second straight month in April to shore up the Taiwan dollar at a time when the greenback has been appreciating against the major non-U.S. dollar currencies.

The Taiwan dollar started the year depreciating against the U.S. dollar on expectations of a hawkish U.S. Federal Reserve introducing a rate hike cycle to take on rapidly growing inflationary pressure.

In March, the Fed raised its key interest rates by 25 basis points followed by an additional 50 basis points increase on May 4. More rate increases are expected in the U.S. later in the year.

The U.S. dollar breached the NT$29 mark in mid-April and hit NT$29.5 against the Taiwan dollar in late April. The strength of the greenback came as foreign institutional investors moved their funds out of the country for greenback denominated assets, Tsai said.

Meanwhile, the local main board suffered losses and the benchmark weighted index plunged 6.22 percent in April with the tech sector hard hit following sell-offs by foreign institutional investors.

Tsai said many foreign institutional investors simply remitted funds from equity sales out of Taiwan, which placed downward pressure on the Taiwan dollar in the month.

“The central bank’s intervention in the local currency market aimed to maintain market stability by reducing volatility suffered by the Taiwan dollar,” Tsai said.

Other countries like China, Japan, Switzerland, India and Singapore also recorded a decline in forex reserves largely due to foreign fund exits because of the stronger U.S. dollar, Tsai said.

He added the central banks of some smaller economies, including Switzerland and Singapore, had jumped into their markets to stabilize the currencies.

In addition to the market intervention, the central bank said the April decline in forex reserves also reflected changes in returns from the management of the central bank’s reserve portfolio.

On the back of a stronger greenback, non-U.S. dollar denominated assets in the central bank’s reserves portfolio saw their value reduced as these assets are converted into U.S. dollars, the central bank added.

At the end of April, the value of foreign investor asset holdings in Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits fell from US$677.2 billion to US$602.6 billion, the lowest in 17 months, in the wake of weakening share prices, the central bank said.

Those holdings represented 111 percent of Taiwan’s total foreign exchange reserves as of the end of April, down from 123 percent at the end of March, the central bank added.

The central bank has said it will maintain ample forex reserves to ensure domestic financial markets remain stable, as well as to guard against any sudden withdrawal of funds from the country by foreign institutional investors.

https://focustaiwan.tw/business/202205050021

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