Taiwan
Taiwan's central bank said the U.S. Federal Reserve's interest-rate cuts have increased pressure on the Taiwan dollar, the best performing currency in Asia outside Japan this year.
“Foreign interest rates will affect fund flows in Taiwan,'' central bank Governor Perng Fai-nan said in response to a question from a parliament committee member about how the Federal Reserve's rate cuts would affect Taiwan's currency. “Taiwan is a small and highly open economy. Foreign fund flows have given a lot of pressure to the currency.''
The Fed has lowered its benchmark lending rate 2 percentage points this year in an attempt to restore confidence to financial markets and avert a recession. The U.S. rate of 2.25 percent is now 1.125 percentage points lower than Taiwan's key rate, attracting foreign cash to Taiwan's higher yields.
Perng said that funds flowing into Taiwan's equity market have also increased pressure on the island's currency. He added that about NT$200 billion ($6.6 billion) of recent inflows were tied to speculation that the currency would rise further.
Perng said he will ask the Financial Supervisory Commission to check whether some of the money that entered Taiwan has been used for equity investment and wasn't being used for currency speculation and sitting in cash accounts. Under Taiwan rules, investors must state the purpose for bringing money into the country.
`Hot Money'
“I don't like hot money, but we've already opened our capital account,'' said Perng, referring to equity funds flowed in for speculation cash advance flexible payments.
The benchmark Taiex stock index gained 4.1 percent at 1:23 p.m. in Taipei after Ma Ying-jeou won the presidential election, ending eight years of Democratic Progressive Party rule, on pledges to rapidly open ties with China and improve the economy.
Taiwan's dollar climbed 1 percent to 30.218 versus the dollar, the strongest since April 2000, and taking its gain this year to 7.3 percent among Asia's most actively traded currencies.
“The Fed's recent rate cuts have put us under a lot of pressure,'' Perng said in response to a question about Taiwan's monetary policy and the bank's budget for the year.
Perng said earlier today in a speech that the central bank's income may be hurt because falling global interest rates would lower returns on overseas investments.
Abundant Liquidity
He said the bank would use open-market operations to try to keep “abundant'' liquidity at reasonable levels.
Perng, speaking to the legislative finance committee today in Taipei, declined to comment on Taiwan's interest rates so close to a policy meeting scheduled for March 27.
Perng said the island's oil prices should reflect production costs, indicting he's opposed to freezing prices to cool inflation.
Taiwan's government in November imposed a ceiling on gasoline and diesel prices after inflation rose to a 13-year high in October. The island imports more than 99 percent of its crude oil.
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