Central bank confident of maintaining stable Taiwan dollar

The Central Bank of the Republic of China said Sunday that it is confident it can keep the Taiwan dollar stable even if the U.S. Federal Reserve raises its key interest rates later this month.

The bank said a stronger U.S. dollar resulting from a rate hike by the Fed more or less has been factored into the global financial markets, but it will monitor the markets' response to the Fed's decision, which is due next week.

While the value of the Taiwan dollar is determined by market mechanism, the bank said, it is capable of maintaining dynamic stability of the currency.

On Friday, the Taiwan dollar closed at NT$31.860 against the U.S. dollar, marking a 1.57 percent drop since the beginning of October, as foreign investors continued to repatriate funds based on the strength of the U.S. currency.

But Lin Hui-ying ( ???), president of Taiwan's National Association of Small and Medium Enterprises, and Lin Por-fong (???), chairman of the Chinese National Association of Industry and Commerce, said the central bank should push down the Taiwan dollar to between NT$33 and NT$33.50 against the U.S dollar to help make local exporters more competitive in the global market.

The Ministry of Economic Affairs (MOEA), however, has expressed concern over volatility of the Taiwan dollar, in view of an expected escalation in the currency depreciation competition in the region.

The MOEA said it will watch closely whether Taiwan's export-oriented competitors will drag down their currencies.

Meanwhile, the ministry said, Taiwanese exporters would be well advised to have hedging policies ready in preparation for currency volatility.

The MOEA also warned that a rate hike by the Fed could compromise U.S. economic growth and drag down demand from the U.S. market, which in turn would affect Taiwan's exports.

It noted that U.S. President-elect Donald Trump has mentioned a huge infrastructure rebuilding plan for his country, which it said might boost inflation and speed up the pace of the Fed's rate hike cycle.

Also commenting on the issue, Wu Ming-hui (???), head of the National Development Council's department of economic development, said that it remains to be seen how Trump will implement his economic policies when he takes office.

Wu said that with its stable economy, Taiwan is likely to withstand the effects of the expected changes in the U.S. economy.

The U.S. economy, the largest in the world, recorded a 3.2 percent year-on-year growth in the third quarter, beating the forecast 2.9 percent increase and registering its best performance in two years.

In November, the U.S. jobless rate dipped to 4.6 percent, the lowest since August 2007, presenting further evidence of an improving domestic economy.

In light of the indicators of a strengthening U.S. economy, the Fed is expected to hike interest rates when it holds its next policymaking meeting Dec. 13-14.

An increase in U.S. interest rates will help to further boost the U.S. dollar, which will prompt a greater outflow of foreign funds from the Asian region and may cause volatility of the regional currencies, including the Taiwan dollar, according to market analysts.

Source: Focus Taiwan News Channel