|
EDITORIAL: NT dollar
caught amid devaluations
There are good reasons for the central bank to be wary of the New Taiwan
dollar¡¦s weakness amid escalating tensions on the Korean Peninsula and the Bank
of Japan¡¦s unveiling of bold easing monetary stimulus policies on Thursday.
These will lead to a further decline in the Korean won and Japanese yen that
will set off a chain reaction in the currencies of the Asia-Pacific region.
The NT dollar, in particular, is likely to bear the brunt because Taiwan is an
export rival of South Korea and Japan and central bank officials will have to
keep the local currency in line with the won and yen to safeguard Taiwanese
exporters¡¦ competitiveness.
The NT dollar is vulnerable to fluctuations in global foreign exchange markets,
given its relatively small trading scale and Taiwan¡¦s export-oriented economy.
Central bank Governor Perng Fai-nan (´^²a«n) has said that in economic terms,
Taiwan is a ¡§small ship,¡¨ which inevitably moves along with the ¡§warships¡¨ of
the US and EU economies. The central bank¡¦s monetary policies must follow, Perng
said.
Since fluctuations are inevitable, Perng said that the NT dollar should move
within a narrow range. Central bank officials have tried to keep the currency
depreciating against the US dollar at an orderly pace over the past three months
as the yen and won also declined. The NT dollar has dropped 2.87 percent since
the beginning of the year to NT$29.925 on Friday. During the same period, the
yen has devalued about 8 percent versus the greenback and the won has declined
4.32 percent.
However, the Bank of Japan¡¦s recent easing of monetary policy is unprecedented
and much stronger than most economists had expected and it could raise the risk
of a currency depreciation spiral in the region. The Bank of Japan promised to
pour about US$1.4 trillion into the Japanese economy in less than two years and
committed itself to open-ended asset buying.
The NT dollar is facing imminent heavy sell-off pressure against the US dollar
when the foreign exchange market resumes trading in Taipei today following the
long Tomb Sweeping Day holiday weekend, after the yen slid 3.4 percent against
the US dollar to ¢D95.57 last week, ending three weeks of gains.
It is widely expected that the NT dollar will fall to below the key benchmark of
NT$30 against the greenback during today¡¦s trading. That would be a more than
seven-month low, because the local currency has traded above NT$30 against its
US counterpart since Aug. 28 last year.
That is why central bank officials were caught off-guard. They canceled their
vacations and returned to work over the holiday to monitor the movements of
global foreign exchange markets and were prepared to intervene to prevent the NT
dollar from drastic devaluation because of ¡§abnormal factors.¡¨
Downplaying the Bank of Japan¡¦s policies, the central bank said Japan was not a
major export rival of Taiwan because less than 40 percent of exports from Japan
overlapped with those from Taiwan. However, South Korea is a big rival, because
83 percent of items exported from South Korea are similar to those from Taiwan,
it said.
South Korean President Park Geun-hye has said her government needed to take
action to reduce the adverse impact on South Korean companies from the
depreciating yen. Park¡¦s meeting with Bank of Korea Governor Kim Choong-soo on
Tuesday sparked speculation about a new-round of interest rate cuts this week to
drive the won lower and boost exports.
The NT dollar is unlikely to be immune to devaluation. The point is how far the
central bank can maneuver to keep the currency stable and safeguard the
government¡¦s annual economic growth target of 3.59 percent this year.
|
