Taiwan Overnight Rate Declines for Sixth Day, Spurs Rate-Cut Bet

Taiwan’s overnight rate dropped for the sixth day, the longest decline since May 2009, on speculation the central bank will cut borrowing costs to help reverse slowing economic growth. The island’s currency gained.

Official data due July 20 may show Taiwan’s export orders dropped 2.75 percent in June from a year earlier, a fourth monthly decline, according to the median estimate of economists in a Bloomberg survey. First-quarter economic expansion was the slowest since 2009, and the statistics bureau cut its 2012 growth forecast to 3.03 percent in May from 3.38 percent. The central bank left interest rates unchanged at 1.875 percent last month, and is scheduled to meet again in September.

“Investors are still concerned about the growth outlook,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “The massive drop in overnight rate is fueling speculation of an interest-rate cut.”

The overnight interbank lending rate slipped two basis points to 0.407 percent, the lowest since March 27, according to a weighted average compiled by the Taiwan Interbank Money Centre.

The Taiwan dollar strengthened 0.1 percent to NT$29.984 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings used to price options, declined five basis points to 3.22 percent.

The yield on the 2 percent bonds due July 2017 rose two basis points, or 0.02 percentage point, to 0.86 percent, according to Gretai Securities Market. It touched 0.842 percent yesterday, the lowest level for benchmark five-year rates since October 2010.

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net