Taipei, Dec. 18 (CNA) Moody's Investors Services, a leading international ratings agency, has affirmed Taiwan's "Aa3" rating, while maintaining the country's outlook at stable, according to the Central Bank of the Republic of China (Taiwan).
In a statement released over the weekend, the central bank said Moody's had described Taiwan as a small and open economy, making it and its financial markets prone to interruptions from external factors amid high inflation and aggressive rate hike cycles worldwide.
However, Moody's said that Taiwan's economy and financial markets still performed well despite these adversary external effects as the central bank had established a record of delivering macroeconomic and financial stability through an assessment of monetary aggregates, inflation expectation, exchange rate among various variables, according to the central bank.
The central bank said Moody's report had agreed that Taiwan's flexibility in the foreign exchange system had served as a buffer to offset the impact resulting from negative external factors.
In addition, Moody's said that while the country was sitting on ample foreign exchange assets the central bank carried out its duty stipulated by law.
Moody's said to combat inflationary pressure arising in the past one to two years, the central bank had raised its key interest rates multiple times by 75 basis points since March 2022 with the discount rate hitting 1.875 percent, the highest level in eight years
The ratings agency said the monetary tightening helped to ease inflationary pressure in Taiwan so that the country's consumer price index growth has ranged between 2 and 3 percent on average since the war between Ukraine and Russia broke out in February 2022, lower than the inflation faced by other economies in similar ratings
On Dec. 14, the central bank left interest rates unchanged in a quarterly policy-making meeting, marking the third consecutive quarter to keep interest rates intact.
Speaking with reporters at the time, Yang Chin-long (楊金龍), governor of the local central bank, said that since inflation was still above the 2 percent alert, the bank would continue to keep interest rates at high levels into the first half of next year, which implies rate cuts may not be possible.
Moody's said Taiwan's banking sector is faced with low systematic risks as banks largely had limited dependence on "wholesale funding", which came from interbank loans, as most of them have a stable deposit base in the Taiwan dollar.
Generally speaking, Taiwan's banking sector has sound asset quality, ample liquidity and a solid deposit source, Moody's said.
Moody's said that as Taiwan was sitting on large foreign exchange reserves with low external debt and enjoyed a consistent surplus in the current account and a massive accumulated net international investment position in the past two decades, the country's external vulnerability risks are extremely low.
As of the end of November, Taiwan's forex reserves rose US$6.44 billion from a month earlier to a new high of US$567.52 billion.
The local central bank has said it will maintain ample forex reserves to ensure domestic financial markets remain stable and guard against any sudden movement of funds out of the country by foreign institutional investors.
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