Taiwan foreign exchange reserves post biggest drop in 12 years

• By Crystal Hsu / Staff reporter

The nation’s foreign exchange reserves last month posted their biggest decline in 12 years to an 18-month low of US$541.11 billion, as capital flight persisted and the central bank intervened to support the local currency, the central bank said yesterday.

“The decline in foreign exchange reserves came after major currencies weakened against the US dollar and the central bank sought to tame the local currency’s depreciation,” Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) told an online news conference.

The New Taiwan dollar last month shed 4.46 percent versus the greenback after the US Federal Reserve raised interest rates by 0.75 percentage points to rein in inflation.

Photo: CNA

Over the same period, the Australian dollar tumbled 5.74 percent, the British pound lost 5.1 percent and the yen softened 4.24 percent against the US dollar, Tsai said.

The central bank spent US$8.25 billion to support the NT dollar in the first six months of this year, with the volume expected to pick up in light of the local currency’s downward trajectory.

At the same time, drastic tightening by major central banks sent financial markets into wild swings, and the local bourse proved no exception, Tsai said.

Securities and saving deposits held by foreign portfolio managers stood at US$436.9 billion, equivalent to 81 percent of foreign exchange reserves — the lowest since July 2020, Tsai said.

The NT dollar fell the most in 25 years in the quarter ending on Sept. 30. It was the second-worst performance in Asia after the won, with global funds selling more than US$10 billion of Taiwanese stocks, Bloomberg data showed.

While the period saw Chinese threats toward Taiwan intensify, the outflows were mainly due to the US rate hikes, central bank Governor Yang Chin-long (楊金龍) said last month.

“Asian central banks might have to keep up their direct and indirect FX intervention to slow the depreciation of their currencies,” Bloomberg Intelligence said in a report this week.

Japan spent almost US$20 billion US dollars last month to prop up the yen. South Korea sold a net US$15.4 billion of US dollars in the three months through June.

If this month sees a fourth monthly decline in Taiwan’s foreign exchange reserves, that would be the longest fall since a four-month stretch in 2008, during the global financial crisis.

Additional reporting by Bloomberg