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Taiwan Dollar Gains as Central Bank Signals Greater Flexibility

Taiwan’s dollar rose this week on speculation the central bank will tolerate appreciation after Governor Perng Fai-nan said the island will allow greater flexibility in the currency.

Overseas investors bought $364 million more Taiwan shares than they sold this week, taking net purchases for the year to $6.9 billion. Foreign-exchange reserves dipped to $379 billion in November from $383.8 billion a month earlier, the central bank reported today, signaling policy makers intervened less in the currency market.

“Rather than going against the tide of appreciation, policy makers will just slow it down,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. “If you keep your currency too weak, that would encourage a lot of capital flows because you are considered undervalued. Potentially, you have an inflation problem.”

Taiwan’s dollar climbed 0.3 percent to NT$30.745 against its U.S. counterpart this week, according to Taipei Forex Inc. The currency was trading 1.6 percent stronger a minute before today’s close and then pared gains to 0.1 percent on suspected central bank intervention. It reached NT$30.015 on Nov. 12, the strongest level since March 2008.

Policy makers want the Taiwan dollar “to catch up with the rest of Asian currencies, rather than falling too much behind year-to-date,” Suan said. Gains in the currency may be capped at NT$30 for the remainder of the year, he said.

Bonds, Inflation

The local dollar has advanced 2.9 percent so far this quarter, the best performance among Asian currencies outside Japan. The currency has climbed 5.5 percent this year, lagging the Thai baht’s 10.7 percent gain, the Malaysian ringgit’s 8.7 percent rise and the 7.2 percent appreciation in the Singapore dollar.

Taiwan government bonds were little changed before a statistics bureau report on inflation due on Dec. 6. Consumer prices rose 0.9 percent in November from a year earlier, after increasing 0.6 percent in October, according to the median estimate of economists in a Bloomberg News survey.

The yield on the 2 percent note due July 2015 was at 0.998 percent, according to Gretai Securities Market, the island’s biggest exchange for bonds. The rate fell one basis point this week. A basis point is 0.01 percentage point.

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