Thu, Sep 13, 2007 - Page 12 News List

NT dollar to gain on rate hikes: Standard Chartered

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The New Taiwan dollar is likely to strengthen more than 3 percent by the end of June next year because the central bank will increase interest rates as economic growth accelerates, Standard Chartered PLC said.

The currency will gain to a two-year high of NT$32 per US dollar, said London-based Standard Chartered, which revised its forecast of NT$32.50 from three months ago.

Taiwanese investors sent a record US$17.2 billion overseas in the second quarter in search of higher yields, driving the currency 1.5 percent lower this year.

Yesterday, the NT dollar traded NT$0.002 higher against its US counterpart, closing at NT$33.069 on the Taipei Forex Inc.

"Further narrowing of interest rate differentials is needed in order to slow Taiwanese investor outflows," Callum Henderson, head of currency strategy at the bank in Singapore, wrote in a report on Monday. "We continue to expect the Central Bank of China to hike interest rates again in September."

The central bank will decide on borrowing costs later this month, after raising rates for 12 straight quarters to 3.125 percent in June. That has helped narrow the yield spread between 10-year Taiwan bonds and similar-dated US Treasuries to 1.9 percentage points, near the tightest this year.

"Capital outflows should slow," Henderson said. "The currency should appreciate modestly and gradually."

The nation's monetary policymakers may increase interest rates at their next meeting after consumer prices accelerated last month by the fastest in six months to 1.59 percent.

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