NT dollar makes largest gain in 5 years

The New Taiwan dollar had its biggest weekly gain in almost five years on speculation that China's increase in interest rates marks a step toward a more flexible yuan exchange rate, which may benefit the nation's exporters.

Traders are increasing bets China will adjust its yuan peg to the US dollar, allowing the currency to gain. Asian products may then be cheaper for Chinese consumers and China's exports less competitive, allowing nations in the region to let their currencies rise.

"The fact that China is tightening rates is putting a lot more pressure on them to" revalue the yuan "sooner than later," said Erik Herzfeld, head of JP Morgan Chase & Co's options dealing in Singapore. A yuan revaluation would boost demand for the NT dollar, he said.

The NT dollar traded higher against its US counterpart yesterday, up NT$0.085 to close at NT$33.435 on the Taipei foreign exchange market. Turnover was US$796 million.

The currency this week climbed 1.1 percent against the greenback, its biggest five-day gain since Jan. 7, 2000.

The Minister of Economic Affairs Ho Mei-yueh (何美玥) said the nation's gross domestic product may grow as much as 6 percent this year, more than the official 5.9 percent government estimate.

Ho said she expects growth to exceed the forecast because of private investment, which grew 29 percent in the first half.