Central bank denies report about potential currency appreciation

A local newspaper said in a front page article Tuesday that the central bank has hinted at Taiwan dollar appreciation in an effort to mitigate inflation from imported commodities, because growth in inflation from domestic demand is likely to remain moderate.

The article was based on a report submitted to the Legislative Yuan's Finance Committee Monday that outlines key points of a presentation to be given by central bank Governor Perng Fai-nan Wednesday to the committee.

In a statement released Tuesday, the central bank said the newspaper misread the report and stressed that it has not hinted at any future trend for the local currency.

"We hope news media will refrain from making arbitrary judgments to mislead readers," the statement said.

The Taiwan dollar opened lower at NT$31.87 against the U.S. dollar on the Taipei Foreign Exchange Tuesday, but rebounded to NT$31.799 at 9:45 a.m., a rise of NT$0.021 from Monday's close.

In the central bank report, Perng argues that pressures from imported inflation are on the rise but says that an appreciating currency can mitigate their impact.

He notes that the Taiwan dollar's exchange rate relative to the greenback has moved in an opposite direction than international crude oil prices, limiting the impact of higher crude oil prices and other commodities on domestic consumers.

But he does not explicitly say in the report that the central bank would follow a policy of allowing the Taiwan dollar to appreciate further.

Instead, the report outlines the central bank's belief that the currency's exchange rate should be determined by market mechanisms but says the CBC will intervene to maintain market order if accidental or abnormal factors lead to drastic market fluctuations in defiance of economic fundamentals.

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