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Taiwan Dollar Gains as Central Bank May Seek to Tame Inflation

Taiwan’s dollar had its first weekly gain in a month on speculation the central bank will allow appreciation to temper inflation. Government bonds were little changed.

The central bank held the benchmark interest rate at 1.875 percent on March 22, and said consumer prices will be a bigger issue than maintaining economic growth this year. Industrial production rebounded 8.4 percent last month from a year earlier, after a 16.8 percent slump in January, official data show.

“It’s possible the central bank may let the currency rise more to ease imported inflation later this year,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei.

Taiwan’s dollar strengthened 0.2 percent today and this week to NT$29.53 against its U.S. counterpart, according to Taipei Forex Inc. The currency has appreciated 2.6 percent this quarter, the most in a year. One-month implied volatility, a measure of exchange-rate swings that traders use to price options, was steady at 4 percent today and is down from 6.3 percent at the end of 2011.

A government report on April 5 may show the consumer-price index rose 1.2 percent in March from a year earlier, after a 0.25 percent increase the previous month, according to the median estimate in a Bloomberg News survey.

The yield on the government’s 1 percent bonds due January 2017 was steady at 0.996 percent today, compared with benchmark five-year yields of 0.987 percent on Dec. 30, according to Gretai Securities Market.

The overnight money-market rate was little changed at 0.414 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. It was 0.405 percent at the end of 2011.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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