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(Bloomberg) — Taiwan’s central bank spent a record amount of money defending its currency last year and may need to do more, given worsening stock market outflows and escalating trade tensions.
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The central bank sold $16.4 billion on a net basis in the foreign exchange market in 2024, according to a report to lawmakers. The dollar sales were a third year in a row and the most since data going back to 2018. Governor Yang Chin-long presented the report to lawmakers on Thursday morning.
“Together with Trump 2.0-induced uncertainties, concentrated and massive short-term foreign capital flows bring challenges to the stability of our foreign exchange market,” the report said.
The Taiwan dollar declined by more than 6% against the greenback in 2024, extending its losing streak to three years. It has fallen another 0.5% this year amid the worst-ever selling streak by foreign investors in its stock market as heavyweight Taiwan Semiconductor Manufacturing Co. fell out of favor.
Foreign investors are increasingly more influential for Taiwan’s equities market as an artificial intelligence frenzy led to a surge in demand for chipmaker TSMC. The market value of local stocks owned by global funds expanded to 142% of the island’s foreign reserves as of the end of February, from 69% in 2016, the central bank’s report shows.
Still, foreign investors have reduced holdings of Taiwanese equities for the past 12 sessions, shedding a net NT$391 billion ($11.9 billion), according to exchange data compiled by Bloomberg. They sold a net $19.5 billion worth of stocks last year.
Shares of TSMC, which accounts for more than a third of the Taiwanese benchmark’s weighting, have fallen over 9% this year.
When asked by lawmakers on Thursday, Yang toned down the currency impact of TSMC’s latest plan to invest another $100 billion in its US facilities. “TSMC doesn’t need to buy US dollars from the forex market, as the money it earned is enough to fund its overseas investment,” Yang said.
Separately, Taiwan’s central bank expects inflation this year to be around 2%, adding it may revise the forecast upward if electricity prices and railway tickets rise. “We need to be more concerned about uncertainties over inflation and the economy,” Yang told lawmakers Thursday.
