NT dollar makes biggest gain in more than a month

The New Taiwan dollar had its biggest gain in more than a month after the central bank said inflation will guide interest rates, raising speculation borrowing costs will rise further after the first increase in almost four years on Sept. 30. The NT dollar gained NT$0.064 to close at NT$33.876 against the US dollar on the Taipei foreign exchange market.

"The future direction of interest rates will depend on inflation," central bank Governor Perng Fai-nan (彭淮南) told the legislature yesterday. Perng also said the central bank would allow market forces to determine the value of the nation's currency.

"The central bank will respect market forces, but we will intervene whenever there are abnormal or seasonal factors," he said.

Consumer prices fell a seasonally adjusted 0.4 percent in August from July, the first drop in three months. Consumer prices, which exclude food and energy costs and are tracked by the central bank, rose 1 percent from a year earlier in August after climbing 1.3 percent the previous month. The government raised its forecast for inflation this year to 1.5 percent from 0.8 percent, and estimated 1.6 percent next year.

"Last week's interest-rate decision was already more than the market anticipated, so it signaled the end of a low interest-rate environment, helping to strengthen the NT dollar," said Gary Huang, a currency trader at the Union Bank of Taiwan (聯邦銀行).