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Foreign exchange reserves fall in July due to central bank intervention

By on August 6, 2022 0

Taipei, Aug 6 (CNA) Taiwan’s foreign exchange reserves fell in July, ending a two-month growth streak, as the central bank entered the market by selling US dollars to limit dollar weakness Taiwanese.

Data compiled by the central bank showed local foreign exchange reserves at the end of July fell by around $1.15 billion from the previous month to $547.81 billion, the lowest so far. now this year.

Tsai Chiung-min (蔡炯民), head of the central bank’s foreign exchange department, said the central bank entered the foreign exchange market to soften the impact of a stronger U.S. dollar and reduce volatility.

According to Tsai, the US dollar index, which tracks the currencies of major US trading partners, rose 1.16% in July, when the greenback rose 0.71% against the Taiwan dollar.

The US Dollar gained momentum as the US Federal Reserve took aggressive action in its rate hike cycle to address soaring inflation. Since March, the Fed has raised its key rates by 225 basis points, while the local central bank has only raised rates by 37.5 basis points.

While the euro fell 2.26% and the Chinese yuan fell 0.71% against the US dollar, other major currencies such as the Japanese yen and Australian dollar rose 2.61%. % and 1.71% against the greenback, according to Tsai.

Therefore, the change in the value of foreign reserves in July also reflects movements in the exchange rates of other reserve currencies against the U.S. dollar in the central bank’s foreign reserve portfolio, Tsai said.

In addition, the change in returns from the management of the central bank’s foreign reserve portfolio was also cited by Tsai as contributing to a change in foreign reserves for the month.

Despite the fall in foreign exchange reserves at the end of July, Taiwan retained its status as the world’s fourth largest holder of foreign exchange reserves, behind only China (3,070 billion dollars), Japan (1,200 billion dollars) and Switzerland (888 .7 billion dollars). according to the central bank.

At the end of July, the value of foreign investors’ holdings of Taiwan-listed stocks and bonds and Taiwanese-dollar-denominated deposits increased by US$8.6 billion from end-June to US$537.9 billion. wake of an increase of 174.34 points in the Taiex, the benchmark weighted index at the Taiwan Stock Exchange, said the central bank.

These holdings accounted for 98% of Taiwan’s total foreign exchange reserves at the end of July, up from 96% at the end of June, the central bank added.

Meanwhile, Tsai said there were no signs that foreign institutional investors rushed to withdraw their funds from Taiwan in a panicked fashion after China launched large-scale military exercises in several locations on Thursday. the island in response to a 7 p.m. visit. by US House Speaker Nancy Pelosi, which Beijing had strongly opposed.

The central bank said it would maintain large foreign exchange reserves to ensure the stability of domestic financial markets, as well as to guard against any sudden withdrawal of funds from the country by foreign institutional investors.

Separately, the Financial Supervisory Commission (FSC), Taiwan’s top financial regulator, said in a statement that foreign institutional investors saw a net outflow of funds worth $5.075 billion, marking the largest net outflow of funds so far this year.

The July figure marked the second consecutive month of net fund outflows, the FSC said, adding that accumulated net fund outflows exceeded $7.6 billion in the two months, citing a wider spread in rates of interest between Taiwan and the United States.

Since the government lifted the ban on foreign institutional investment in the local stock exchange in late 1990, foreign institutional investors have accounted for a cumulative total of approximately $218.35 billion in net inflow of funds into Taiwan in July, according to FSC data.

(By Chang Ai, Hsieh Fang-yu and Frances Huang)

End article/HY