Taipei: Taiwan's foreign exchange reserves experienced a decline for the second month in a row by the end of August, as the central bank took measures to curb the Taiwan dollar's fall against the U.S. dollar. The Central Bank of the Republic of China (Taiwan) reported a decrease of US$439 million in the country's forex reserves from the previous month, bringing the total to US$597.43 billion at the end of August.
According to Focus Taiwan, the New Taiwan dollar saw a drop of NT$0.689 against the U.S. dollar during August. Tsai Chiung-min, who heads the central bank's Foreign Exchange Department, stated that fluctuations in forex reserves were influenced by the appreciation of major currencies against the U.S. dollar.
Tsai noted that around mid-August, foreign investors offloaded a significant volume of Taiwanese stocks, prompting intervention from the central bank to stabilize the market, which contributed to the decline in reserves. During August, major currencies like the euro, pound sterling, Australian dollar, Japanese yen, Swiss franc, and Chinese yuan strengthened, while the U.S. dollar index fell by 2.2 percent.
The New Taiwan dollar, however, underperformed, depreciating by over 2 percent. This was primarily due to foreign investors repatriating dividends and a series of share sell-offs, resulting in capital outflows from the forex market, as explained by Tsai. Foreign investors' net outflows, including earnings and dividends, amounted to roughly US$6 billion.
Tsai observed that compared to the second quarter, the market's unrealistic expectations of currency appreciation had largely diminished. Investors are generally anticipating a 25-basis point interest rate cut by the U.S. Federal Reserve in September, totaling 50-75 basis points in cuts for the year. These factors have mostly been accounted for, and their effect on the exchange rate is expected to be limited in the third quarter.
Despite the consecutive monthly drop in Taiwan's forex reserves, Tsai emphasized that the reserves remain substantial. The central bank is set to release detailed figures on its interventions in its forthcoming report to the Legislative Yuan.