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Taiwan Dollar Rises as Inflation May Spur Gains; Bonds Climb

April 12 (Bloomberg) -- Taiwan’s dollar reached a one-week high on speculation an improving outlook for the economy and the risk of a pickup in inflation will prompt policy makers to allow appreciation. Government bonds rose.

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 rose 8.4 percent in February from a year earlier, after a 16.8 percent slump the previous month, official data show. The government plans to raise electricity prices, Hwang Jung-chiou, vice minister of economic affairs, said yesterday.

“Inflation risks and rate-hike expectations are creeping higher,” said Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore. “Taiwan will be a strong beneficiary from the cyclical bounce in electronics shipments, which we think will be a stronger theme in the second quarter. All this is pointing to a stronger currency.”

Taiwan’s dollar traded at NT$29.550 against its U.S. counterpart, compared with NT$29.562 yesterday, according to Taipei Forex Inc. It touched NT$29.410, the strongest level since April 5. Leong forecast the island’s currency will reach NT$29 this quarter. One-month implied volatility, a measure of exchange-rate swings traders use to price options, was steady at 4 percent.

The yield on the government’s 1 percent bonds due January 2017 fell one basis point to 1.017 percent, according to Gretai Securities Market. That was the lowest level this month.

The overnight money-market rate dropped one basis point, or 0.01 percentage point, to 0.45 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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

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