Taipei, Taiwan's foreign exchange reserves at the end of June hit a record high partly because of central bank buying of the U.S. dollar in the local forex market to slow the pace of the Taiwan dollar's appreciation, the central bank said Friday.
Data released by the central bank showed that the country's forex reserves as of the end of June rose US$2.54 billion from a month earlier to US$466.97 billion.
The increase came after a fall of US$394 million in May, when the bank sold the U.S. dollar to prevent the Taiwan dollar from falling further.
It was the second consecutive month that the central bank admitted to intervening in the local forex market.
In addition to its purchases of the greenback, a higher euro, which is in the bank's investment portfolio, and an increase in returns on its investment portfolio also boosted forex reserves in June, the central bank said.
Harry Yen head of the central bank's Foreign Exchange Department, said optimism toward a possible solution to the trade dispute between the United States and China led foreign investors to move funds into the region.
The optimism stemmed from a tweet by U.S. President Donald Trump on June 18 that he had a good conversation with Chinese President Xi Jinping and both agreed to talk at the G20 summit at the end of June.
Washington and Beijing did agree on the sidelines of the G20 summit on June 29 to suspend the continued escalation of tariffs against each other.
Yen said expectations that interest rates in the U.S. and Europe could be cut in the second half of the year also led foreign institutional investors to move large amounts of funds into Taiwan to buy stocks, pushing the Taiwan dollar higher against the U.S. dollar.
"Sudden capital inflows caused excessive volatility and the central bank stepped in to maintain an orderly foreign exchange market," the bank said in a statement.
In June, the Taiwan dollar rose NT$0.54 or 1.71 percent against the U.S. dollar due to large fund inflows, while the weighted index on the Taiwan Stock Exchange rose 232.34 points, or 2.21 percent.
At the end of June, the holdings of Taiwanese stocks, bonds and Taiwan dollar-denominated deposits by foreign investors totaled US$367.9 billion, an increase of US$15.6 billion from the previous month.
As a result, foreign-held assets at the end of June were equal to about 79 percent of Taiwan's foreign exchange reserves, up from 76 percent in May, central bank data showed.
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.
Source: Focus Taiwan News Channel