Taiwan signals will curb 'excessive volatility'

“I hope it will continue to fall” as excessive volatility in the local currency may hurt the economy, Perng told lawmakers in Taipei today. He said the amount dropped to about NT$350 billion ($11 billion) from about NT$400 billion a month earlier, and reiterated that investors from abroad should use funds as stated in their filings to the Taiwan monetary authority.

Asian currencies have rallied this year as optimism the region will lead the world out of recession encouraged international investors to put money into local assets. Policy makers are intervening to prevent exchange-rate appreciation from hurting exports, which plummeted as global demand slumped.

Indonesia's central bank Senior Deputy Governor Darmin Nasution today said the bank is “seriously” studying the option of limiting foreign-fund inflows into its short-term bills. Concern about speculative capital prompted Brazil to impose a 2 percent tax on foreign purchases of equities and fixed-income assets in October.

Overseas funds bought $13.4 billion more Taiwan shares than they sold this year, helping lift the Taiex stock index 69 percent and the Taiwan dollar 1.7 percent. Improving relations with China and a pending agreement to expand cross-border investment is also attracting capital from abroad.

Rate Policy

Taiwan's dollar weakened 0.5 percent to NT$32.290 versus the greenback as of 4 p.m. local time, the most since April, according to Taipei Forex Inc. It touched NT$32.029 on Nov. 17, the strongest level since Oct. 1.

The Central Bank of the Republic of China (Taiwan) will step in if irregular factors cause excessive currency volatility, Governor Perng said today. “Excessive fluctuations in the foreign-exchange market are unfavorable for the economy.”

The central bank bought the greenback to slow the local currency's gains on Nov. 17 after the island's dollar rose to the highest level in more than a month, according to two traders familiar with the bank's operations.

Taiwan's exports fell for a 14th straight month in October, sliding 4.7 percent from a year earlier. The island's gross domestic product dropped 7.54 percent in the second quarter, after declining a revised 10.13 percent in the first three months of the year, the statistics bureau said on Aug. 21. The economy may return to growth in the October-December period, the agency said in August.

Property Prices

Perng said today that interest-rate policy depends on economic conditions, including inflation. The central bank has kept borrowing costs at a record-low 1.25 percent since February to help pull the economy out of recession.

Taiwan's consumer prices dropped for a ninth month in October as retailers discounted products to attract customers, a statistics bureau report on Nov. 5 showed.

“Taiwan's real interest rates aren't very low as prices are falling,”Perng said.

Banks should tighten risk management on loans and consider borrowers' ability to repay loans instead of just their collateral, the governor said. The central bank on Oct. 29 asked state-controlled lenders to tighten scrutiny on mortgages.

Property prices in central Taipei have risen too much, Perng told lawmakers today. Home loans increased 3.6 percent to NT$4.89 trillion at the end of September from a year earlier, according to the central bank.

The government shouldn't use tax policies to control property prices, he said. Better city planning and transportation systems will encourage a higher number of first-time homebuyers to invest outside the city center, he said.

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