Stronger greenback on Fed rate hike forecast to help Taiwan exports

17-Dec-2016 Intellasia | CNA | 6:00 AM Print This Post

The National Development Council (NDC), the top economic planning agency in Taiwan, said Thursday that the strengthening of the US dollar after the US Federal Reserve’s decision to start raising interest rates again will eventually benefit Taiwan’s exports.

With the US dollar trending higher against the Taiwan currency, Taiwan’s exports will rise, helping to strengthen the domestic economy, NDC deputy minister Kung Ming-hsin (???) said.

On Wednesday, the Fed raised its key interest rates by 0.25 percentage points, as was widely expected, citing a healthy US economy. It was only the second rate hike by the Fed in a decade and was decided by a unanimous vote.

Citing the steady growth of the US economic fundamentals, the Fed hinted at a quicker interest rate hike in 2017 to prevent overheating of the economy.

Based on the Fed’s decision and projections, the US dollar gained momentum in the global markets Thursday and rose NT$0.101 in Taiwan to close at NT$31.904 in the morning session.

The expected boost of Taiwan’s exports as a result of its weaker currency will result in a gross domestic product (GDP) growth of 0.5 percent-0.6 percent next year, Kung said, citing a forecast by the country’s directorate general of Budget, Accounting and Statistics (DGBAS).

In late November, the DGBAS forecast that Taiwan’s GDP will grow 1.87 percent in 2017 on the back of rising global demand, compared with an estimated 1.35 percent increase in 2016.

However, the Ministry of Economic Affairs (MOEA) said there was some worry that a stronger US dollar would escalate the currency depreciation competition among the many export-oriented economies in the Asian region, as they jostle for space in the global market.

This would create greater volatility in the currency market, the MOEA said, urging Taiwanese exporters to come up with measures to hedge possible foreign exchange risks.

The MOEA said it will closely watch how many times the Fed raises interest rates next year, as it would directly affect the currencies and financial situation in the entire region.

Meanwhile, vice Finance minister Su Jain-rong (???) said the National Financial Stabilisation Fund will monitor the effects of the Fed’s rate hike on the local equity market.

However, the rate hike had already been largely factored into local share prices, said Su, who is also manager of the stabilisation fund.

The weighted index on the Taiwan Stock Exchange closed down 0.09 percent at 9,360.35 points Thursday after recovering from early losses.

The NT$500 billion stabilisation fund was set up by the government to serve as a buffer against unexpected external factors that may disrupt the local bourse.


Category: Taiwan

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