Business

Central bank intervenes to stem rise in NT dollar

• Publication Date：05/12/2010
• Source： Economic Daily News

The New Taiwan dollar dropped NT$0.229 to NT$31.829 against the U.S. dollar May 11, marking the largest single-day decline in 13 months, on intervention by the Central Bank of the Republic of China.

The central bank intervened just before the close of trade on the Taiwan market by purchasing more than US$100 million in greenbacks, causing the local currency to slide by NT$0.2 within a single minute.

CBC Gov. Perng Fai-nan, who was on hand in person in the trading room yesterday, has been working in recent months to stem an appreciation in the NT dollar by trying to curb the inflow of speculative foreign capital.

Trading volume on the foreign exchange market May 11 topped US$1.423 billion, with the high-low range of the NT dollar reaching nearly NT$0.4 for the trading day.

Foreign exchange managers stressed that the move of non-delivery forward contracts has hitherto been used as an important index for observing foreign hot money flows. The NDFs’ discount widened to NT$0.2 at one point Monday. Although it narrowed to NT$0.14 Tuesday, overall the market still anticipates a strong upward movement trend for the NT dollar. This is the main concern for the central bank, which has therefore moved to intervene in the foreign exchange market in an attempt to put the brakes on speculation.

The forex managers said although the central bank is working to counter the trend of a strengthening NT dollar, it has not set a specific exchange rate target and is instead making flexible adjustments based on the situation regarding other Asian currencies.

Therefore, they said, the direction of the NT dollar in the weeks and months ahead will depend on three factors, namely the situation regarding foreign capital flows into and out of the country, the value of other Asian currencies against the greenback and the central bank’s attitude. (SB)