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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: Weak Taiwan dollar not panacea for economic ills Reuters - 2 hours 56 minutes ago By Lee Chyen Yee ADVERTISEMENT TAIPEI, Feb 20 - The Taiwan dollar, at a 5-1/2-year low, is likely to slow its recent rapid decline as officials say a weak currency alone can't cure an economy that is ailing from an exports slump and sluggish corporate investments. The Taiwan dollar <TWD=TP>, now at T$34.8 to the U.S. dollar, will likely hit some resistance at about T$35 in coming weeks, as it plumbs lows not seen since 2003 when SARS hammered domestic consumption, analysts said on Friday. It could fall even further if other Asian currencies, such as the South Korean won <KRW=>, weaken sharply, although it is unlikely to test T$40 this year, analysts said. The last time it traded near T$40 was in the 1980s before it was fully convertible. While the island's exporters are bound to benefit from a weak Taiwan dollar, especially with the South Korean won weakening much more sharply, companies worry that too weak a currency would make imports of raw materials and machinery expensive. "Most electronics companies will agree that the Taiwan dollar will need to weaken further given how much the won has depreciated over the past year," said Luo Huai Jia, vice president of the Taiwan Electrical and Electronic Manufacturers Association. "Our electronics and machinery exports are about double our electronics imports and therefore, a weaker Taiwan dollar will help companies more. We'll be pretty comfortable with the T$35 level for now," Luo said. The tech-reliant economy sold $108 billion worth of machinery, electronics and electrical products last year, about half of total exports, and imported $67 billion worth of goods in the same category, government data showed. Taiwanese companies have been wary of competing with South Korea, which shares a similar trade profile. DEPRECIATION RACE UNHEALTHY Taiwan's central bank has been buying U.S. dollars actively over the past month or so to help the Taiwan dollar weaken, though it hinted that a weak currency is not the answer to all economic problems. It keeps the Taiwan dollar in a managed float. "It is unhealthy to engage in a currency depreciation race," Governor Perng Fai-nan said on Wednesday, after slashing interest rates to a record low of 1.25 percent. In 2008, the Taiwan dollar only fell 1.1 percent, a far cry from the South Korean won <KRW=>, which has lost a quarter of its value. Since the start of 2009, the Taiwan dollar lost over 5 percent of its value, less than the won's 16 percent decline. Morgan Stanley said in a report it expected the Taiwan dollar to hit T$36.5 at the end of 2009 and an average of T$35.7 this year, weaker than T$32.9 at the end of 2008 and a 2008 average of T$31.5. One-month implied volatility on the dollar <TWD1MO=> traded at 7.25/8.25 percent, suggesting that the option market players were not betting on a sharp fall. "What's different this time round is that the central bank is probably also trying to manage volatility, particularly against the Korean won," Joseph Lau, an economist at Credit Suisse. "So while it won't exactly match the won in terms of point-for-point depreciation, but if the won continues its weakening, it becomes inevitable that the Taiwan dollar will weaken as well." Taiwan is facing a tough time as it is set to suffer from its longest recession ever, with the worst economic contraction of 3 percent this year as its exports fall by a historic record, pushing up jobless rate to a 5-1/2-year high. The government expects private investments to fall by 28 percent this year, the biggest drop in about half a century, due to faltering global demand for everything from handphones to music players. As a result, the central bank will have to execute a delicate balancing act by maintaining export competitiveness without jeopardising domestic investments and consumption. "In the short term, a weaker Taiwan dollar will be beneficial to exporters, especially the big brands," said Robyn Hsu, who manages T$6 billion for Capital Securities Investment Trust. "However, looking ahead, if demand is still non-existent, a weak Taiwan dollar could do more damage than good. Inflationary pressure will lead to lower domestic spending, which will just drag down the economy." (Additional reporting by Kelvin Soh and Jeanny Kao; Editing by Ken Wills) Email Story IM Story Printable View Blog This Recommend this article Average (0 votes) Sign in to recommend this article » Most Recommended Stories » Related Articles: Business Shares up in China, elsewhere, but will it last?AP - 1 hour 1 minute ago Actors, studios end contract talks, hit new snagReuters - 1 hour 1 minute ago Turk benchmark bond yield at 14.75 pct after rate cutReuters - 1 hour 1 minute ago Nippon Oil to delay joint venture with CNPCReuters - 1 hour 6 minutes ago CORRECTED - CORRECTED-Aurobindo Pharma gets US FDA nod for TenofovirReuters - 1 hour 10 minutes ago Most Popular – Business Viewed Malaria: Spoonful of sugar could save thousands of children Seductive chemicals hidden in sloppy kisses UBS admits tax fraud after US charges Iraqi shoe-thrower defiant as trial adjourned Huge gamma-ray blast spotted in space View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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