Central bank expected to focus on Taiwan dollar in quarterly meeting

Yuanta-Polaris Research Institute president Liang Kuo-yuan.

Yuanta-Polaris Research Institute president Liang Kuo-yuan. (CNA photo)

When Taiwan's central bank holds its quarterly policymaking meeting next week, it is likely to give greater attention to the local foreign exchange market than interest rates, in light of the Taiwan dollar's sharp upswing in recent months, according to economists.

With the Taiwan currency reaching a 23-year high of NT$28.521 against the U.S. dollar on Friday, the central bank should signal to the market the fair value of the Taiwan dollar by crunching its data through a reliable model and based on international financial theories, said Liang Kuo-yuan (梁國源), president of the Yuanta-Polaris Research Institute.

"At least, the central bank should give the market some hints on how far the Taiwan dollar might rise against the greenback, which would help to calm the anxiety among currency traders and Taiwanese exporters," he said.

Exporters will be able to take appropriate hedging measures to avoid foreign exchange losses, he added.

In recent policymaking meetings, the central bank's focus has been on interest rates, in an effort to stabilize the domestic economy amid the COVID-19 pandemic.

At its last meeting in September, the central bank left its key interest rates unchanged for the third consecutive quarter, retaining the discount rate at 1.125 percent, the lowest in Taiwan's history. When its next meeting is held Dec. 17, the bank is not expected to adjust interest rates, according to economists.

On Monday, the U.S. dollar ended at the day's high of NT$28.534 against the Taiwan dollar, up NT$0.013 after bouncing back from a low of NT$28.534 with dealers attributing the rebound to the central bank's intervention as foreign fund inflows continued.

As of the end of November, Taiwan's foreign exchange reserves were at a record US$513.397 billion, up US$12.16 billion from a month earlier.
The central bank said it has been entering the trading floor to buy the greenback and cap the rise of the Taiwan dollar, which has boosted the country's forex reserves, adding the intervention aimed to smooth volatility in the market.

On Dec. 17, the bank is also likely to turn its attention to the domestic property market, which has been rising due to speculation, according to Wu Meng-tao (吳孟道), director of the sixth research division at the Taiwan Institute of Economic Research (TIER).

Last week, the Cabinet released a five-point plan to rein in real estate market speculation, including proposals to curb the flipping of pre-sold houses and to crack down on property transactions carried out under a company's name to reduce tax liability.

At the central bank's upcoming meeting it is also expected to raise its forecast for Taiwan's 2020 gross domestic product growth, on strong exports and a better than expected third-quarter GDP performance.

In September, the central bank upgraded its forecast for Taiwan's 2020 GDP growth from 1.52 percent to 1.6 percent.

Updated : 2021-03-09 00:52 GMT+08:00