Taiwan’s forex reserves down for the 4th straight month on intervention

Taipei, May 7 (CNA) Taiwan’s foreign exchange reserves at the end of April fell from a month earlier, marking the fourth consecutive month-on-month decline in the wake of market intervention to bolster the Taiwan dollar against the US dollar, according to the Central Bank of the Republic of China (Taiwan).

Data compiled by the central bank showed the country’s forex reserves as of the end of April fell US$1.08 billion from a month earlier to US$567.02 billion. The April figure dipped to the lowest level since October 2023, when forex reserves stood at US$561.08 billion.

In a statement, the central bank said the fall in forex reserves in April came after the bank jumped into the market to cap the depreciation of the Taiwan dollar against the US dollar.

On the other hand, an increase in returns from the bank’s investment portfolio offset the fall in forex reserves to some extent for April, the central bank said.

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the central bank’s Foreign Exchange Department, said on Monday that the local forex market was volatile during April as the stock market recorded its steepest daily decline ever on April 19.

As a result, Tsai said the central bank entered the market to prop up the Taiwan dollar and prevent further losses against the greenback.

On April 19, the Taiex, the weighted index on the Taiwan Stock Exchange, plunged 774.08 points, or 3.81 percent to close at 19,527.12 points after recording the second steepest intraday decline of 1,009.32 points.

The sell-off on April 19 was triggered by disappointment over a move by contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC) to cut its 2024 market outlook for the entire semiconductor industry as well as escalating tensions in the Middle East. However, TSMC left its own guidance for 2024 unchanged, reiterating sales would rise 21-26 percent in US dollar terms.

The plunge on the main board came after foreign institutional investors registered net sales of NT$85.75 billion (US$2.65 billion), the second largest net sales level after NT$94.41 billion on Feb. 26, 2021, which pushed down the Taiwan dollar.

In addition to equity market volatility, Tsai said the weakness of the Japanese yen led to the depreciation of many other non-greenback currencies against the US dollar, adding downward pressure on the Taiwan dollar, which also prompted the central bank to step in, Tsai said.

In April, the US dollar index, which tracks the value of the greenback against the currencies of Washington’s six major trading partners moved higher by 1.66 percent, while the Taiwan dollar also plunged 1.66 percent against the greenback.

The yen suffered a relatively deep decline of 3.47 percent against the US dollar in April, while the South Korean won fell 2.59 percent, and the euro dropped 0.65 percent.

However, the Australian dollar and Chinese yuan bucked the downturn, rising 1.03 percent and 0.08 percent, respectively, against the US dollar in April.

Compared with the yen and the South Korean won, Tsai said, the Taiwan dollar appeared relatively stable as Taiwan benefited from a solid export performance led by the bellwether electronics sector.

Citing an advance estimate released by the Directorate General of Budget, Accounting and Statistics at the end of April, Tsai said Taiwan’s economy scored solid growth, rising 6.51 percent in the first quarter, an upgrade of 0.59 percentage points from an earlier forecast made in February .

As Taiwanese exporters sold their US dollars in exchange for the Taiwan dollar to pay their taxes, demand for the local currency increased, accordingly, Tsai said.

“Demand and supply in the local forex market appeared relatively steady in April, compared with other markets,” Tsai added.

Meanwhile, central bank data shows the value of foreign investors’ holdings of Taiwan-listed stocks and bonds, and Taiwan dollar-denominated deposits fell to US$713.0 billion at the end of April, down from US$729.0 billion at the end of March.

Those holdings represented 126 percent of Taiwan’s total foreign exchange reserves as of the end of April, down from 128 percent at the end of March, the data indicated.

The local central bank has said it will maintain ample forex reserves to ensure domestic financial markets remain stable and guard against any sudden movement of funds out of the country by foreign institutional investors.