Taipei: Taiwan's foreign exchange reserves dipped below the US$600 billion threshold by the end of June, as the central bank intervened in the market to curb the U.S. dollar's rise against the Taiwan dollar during the month. The reserves decreased by US$7.922 billion from the previous month to US$597.15 billion, marking an end to two consecutive months of growth, according to data released by the central bank on Monday.
According to Focus Taiwan, despite achieving positive returns on its portfolio in June, the central bank's actions to sell U.S. dollars and purchase Taiwan dollars to prevent the greenback from gaining too much ground led to the decline in forex reserves. Tsai Chiung-min, head of the Foreign Exchange Department, noted that following the U.S. Federal Reserve's recent policy meeting in mid-June, market sentiment leaned towards a perception of new Fed Chairman Kevin Warsh as more hawkish than anticipated.
Tsai explained that the Fed's latest dot plot, reflecting individual members' interest rate expectations, suggested at least one rate hike by year-end. This prospect of rising interest rates bolstered the U.S. dollar's strength globally, exerting pressure on non-U.S. currencies, including the Taiwan dollar. Additional pressure came from foreign institutional investors moving funds out of Taiwan in June, resulting in a 1.42 percent depreciation of the Taiwan dollar against the U.S. dollar.
The central bank's intervention aimed primarily at maintaining market order was less extensive than efforts in March, amid geopolitical tensions in the Middle East. On Monday, the U.S. dollar surpassed the NT$32 benchmark against the Taiwan dollar for the first time since March 24, closing at NT$32.025, reflecting market expectations of a robust U.S. dollar.
Central bank data also indicated that foreign investors' holdings in Taiwan-listed stocks, bonds, and Taiwan dollar deposits amounted to US$1.889 trillion at the end of June, slightly down from US$1.896 trillion in May. These holdings represented 316 percent of Taiwan's total forex reserves in June, up from 313 percent a month earlier.
The bank further disclosed that it sold US$12.59 billion more U.S. dollars than it purchased in the first quarter, marking the second consecutive quarter of being a net seller. The central bank has committed to maintaining adequate forex reserves to ensure the stability of domestic financial markets and to protect against any abrupt fund withdrawals by foreign institutional investors.