Taiwan foreign exchange reserves fall to 10-month low

台灣外匯存底降至10個月新低

TAIPEI (Taiwan News) — Taiwan’s foreign exchange reserves fell to a 10-month low at the end of March, as capital outflows linked to the escalating Iran conflict pressured the Taiwan dollar and prompted central bank intervention.

The Central Bank said Wednesday that foreign exchange reserves stood at US$596.886 billion (NT$18.978 trillion) at the end of March, down US$8.601 billion from the previous month, the largest monthly drop since the 2011 European debt crisis, per CNA.

Tsai Chiung-min (蔡炯民), head of the Central Bank’s Foreign Exchange Department, said March is typically a lower-yield month for investment returns. He added that heightened geopolitical tensions stemming from the Iran conflict increased global risk aversion, boosting the US dollar and weakening most other currencies.

Foreign investors were significant net sellers of Taiwanese equities in March, contributing to capital outflows and volatility in the foreign exchange market. The Central Bank intervened to curb further depreciation of the Taiwan dollar, Tsai said.

The Taiwan dollar depreciated 2.28% in March, marking its steepest monthly decline in nearly three and a half years.

Foreign investors sold a net NT$968.2 billion in Taiwanese stocks during the month. After accounting for trade surpluses and principal flows, net foreign capital outflows reached a record US$24 billion, further straining the currency market, Tsai said.

He noted that Taiwan’s stock market has expanded significantly in recent years, surpassing 30,000 points, compared with its historical range of 10,000 to 20,000, amplifying the impact of capital movements.

The imbalance between supply and demand for the Taiwan dollar led the Central Bank to draw on foreign exchange reserves to stabilize the market, resulting in the sharp monthly decline.

Tsai said that even during the US Federal Reserve’s rate-hiking cycle from 2022 to 2024, monthly changes in reserves were not as pronounced. The last comparable decline occurred during the European debt crisis in 2011, when exchange rate pressures and central bank intervention similarly coincided.

He added that several countries, including Japan, South Korea, and India, also reported declines in foreign exchange reserves in March. Despite the recent outflows, Tsai said Taiwan’s strong current account surplus and exporters’ large US dollar holdings continue to support the Taiwan dollar.

Looking ahead, Tsai said developments in the US-Iran conflict and their impact on global oil prices will remain key factors influencing financial markets. Rising geopolitical risks and economic uncertainty have also led investors to scale back expectations for US Fed rate cuts, with some now seeing a 70-80% chance that rates will remain unchanged through the end of the year.