Taiwan’s foreign exchange reserves rose more than US$1 billion at the end of February from a month earlier, marking the fifth consecutive month of growth and hitting a new high mainly due to an increase in returns from the central bank’s investment portfolio, according to the bank.
Data compiled by the central bank showed the country’s forex reserves stood at US$558.37 billion as of the end of February, up US$1.23 billion from a month earlier, marking the fourth straight month that forex reserves have reached a fresh high.
Tsai Chiung-min (???), head of the central bank’s Foreign Exchange Department, said although the U.S. dollar appreciated against many non-greenback currencies in February, Taiwan still built up a larger amount of forex reserves by benefiting from the growth of the central bank’s investment returns.
Tsai said the central bank received dividends distributed by U.S. treasuries on the bank’s investment portfolio in February during dividend distribution season, which offset the impact from a stronger U.S. dollar, which pushed down the forex reserves when the central bank converted its non-greenback assets into the American currency.
According to the central bank, the U.S. dollar index, which tracks the currencies of Washington’s six major trading partners, rose 3.05 percent in February with non-greenback currencies, such as the euro, the British pound, the Japanese yen, and the Australian dollar, weakening as the market anticipated the Federal Reserve would continue its rate hike cycle in the first half of this year in the wake of strong U.S. job data in the month.
After the increase in February, Taiwan further cemented its status as the fourth-largest forex reserve owner in the world, trailing only China (US$3.18 trillion as of January), Japan (US$1.12 trillion as of January) and Switzerland (US$851.0 billion as of January), and ahead of India (US$496.1 billion as of Feb. 17), Tsai said.
Tsai said the local forex market saw a balance in demand and supply in February.
In the first half of the month, Taiwanese firms rushed to buy the Taiwan dollar, while the central bank stepped in to buy the U.S. dollar to stabilize the market, Tsai said.
In the second half, when demand for the U.S. dollar increased, the bank intervened again to sell the greenback to prevent volatility of the local currency, he added.
As of the end of February, the value of foreign investors’ asset holdings of Taiwan-listed stocks and bonds and Taiwan dollar-denominated deposits rose from US$551.7 billion at the end of January to US$546.3 billion, central bank data showed.
Those holdings represent 98 percent of Taiwan’s total foreign exchange reserves, down from 99 percent at the end of January, the data indicated.
Tsai said the small fluctuations in those holdings came after a stable equity market in February, when the Taiex, the weighted index on the Taiwan Stock Exchange, moved within a narrow range, rising by 238.59 points or 1.56 percent.
Tsai added the central bank would continue to watch how the Fed would adjust its monetary policy and that it was possible the Fed could raise its key interest rates by an additional 75 basis points this year.
The central bank has said it would maintain ample forex reserves to ensure that domestic financial markets remain stable and guard against any sudden movement of funds out of the country by foreign institutional investors.
Source: Focus Taiwan News Channel