Taiwan curbs bullish bets as local dollar rises
Amid fears over export competitiveness, island's central bank tries to stabilise local currency
Taiwan, seeking to rein in the local dollar and boost export competitiveness, tightened limits on domestic banks' bullish bets on the currency following the yen's tumble to the lowest level since 2008.
The central bank reduced the daily cap on the net US dollar short position that can be held by each bank to US$5 million from US$10 million, according to Spencer Lin, director general of foreign exchange.
The rule, which aims to "stabilise" the Taiwan dollar, was due to come into effect yesterday, he said. A short position in the greenback is a bet on depreciation against the local currency, and traders were informed of the clampdown yesterday.
The island's electronics exporters are struggling to compete against Japanese rivals including Sony after the local dollar strengthened 22 per cent to a five-year high versus the yen in the past six months.
Gross domestic product increased in the first quarter at less than half the pace economists estimated, putting pressure on policymakers to weaken the currency to protect overseas sales.
"It's very apparent that the central bank wants to send the local currency lower," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. "The Taiwan dollar has been depreciating against the greenback lately, but the yen depreciates even more. The purpose is to keep Taiwan's goods competitive in overseas trade."
