Taiwan's forex reserves drop as central bank intervenes in market

Taiwan's Central Bank (left) in Taipei

Taiwan's Central Bank (left) in Taipei (CNA photo)

Taipei (CNA) - Taiwan's foreign reserves fell at the end of May for the first time in six months as the central bank entered the market to buy the local currency, which offset its returns from its management portfolio, according to a statement released by the bank earlier in the week.

Data from the central bank showed Taiwan's forex reserves at US$464.43 billion as of the end of May, down by US$394 million from April when they rose by US$750 million.

In May, the Taiwan dollar came under pressure against the U.S. dollar amid foreign fund outflows due to rising concerns over the trade frictions between China and the United States.

"The central bank stepped in to smooth out the high volatility in the foreign exchange market in May 2019, offsetting the returns from foreign exchange reserves management," the bank said in the statement, in a rare admission of intervention in the market.

The Taiwan dollar fell 2.24 percent against the U.S. dollar in May as foreign institutional investors recorded a net fund outflow of US$2.03 million, according to the Financial Supervisory Commission.

Harry Yen (顏輝煌), head of the central bank's Foreign Exchange Department, told the press that the daily fluctuation of the Taiwan dollar was NT$0.069 on average in May, much higher than the NT$0.035 recorded in April.

The high fluctuation, coupled with the China-U.S. trade tensions, contributed to increased risks in the market, which prompted the central bank to step in to maintain market order, after careful assessment, Yen said.

All the bank did was help quell the volatility in the forex market, he said, adding that the bank cannot control the movement of the Taiwan dollar.

At the end of May, the holdings of Taiwanese stocks, bonds and Taiwan dollar-denominated deposits by foreign investors totaled US$352.3 billion, a decline of US$33.6 billion from the previous month.

As a result, foreign-held assets at the end of April were equivalent to about 76 percent of Taiwan's foreign exchange reserves, down from 83 percent in April, the central bank data showed.

Due to weaker investor sentiment amid volatility in the global financial markets, the benchmark weighted index on the Taiwan Stock Exchange dropped 469.24 points, or 4.28 percent, in May, according to the data.

Foreign institutional investors sold a net NT$144.9 billion worth of shares on the main board in May, the data showed.

Despite the decline in Taiwan's forex reserves in May, they were the fifth highest in the world after China, which recorded US$3.095 trillion at the end of April, Japan (US$1.23 trillion), Switzerland (US$758 billion) and Saudi Arabia (US$493.7 billion), the bank said.

The central bank has said it is committed to maintaining ample forex reserves by improving investment returns to guarantee secure financial markets at home, even if foreign institutional investors move funds out of the country. (By Chiu Po-sheng and Frances Huang)