Taiwan dollar to rise on China relations: Goldman

The New Taiwan dollar will rise as the economy benefits from improving links with China, following Ma Ying-jeou's (馬英九) presidential victory at the weekend, said Goldman Sachs Group Inc, the world's largest securities firm.

Goldman forecasts the start of direct air flights between China and Taiwan, increased capital investments between the two and looser restrictions on Chinese tourists to the nation.

The "victory could be met with a positive response, given its more market-friendly stance on cross-straits policies, and the reduced likelihood of an escalation in cross-straits tension going forward," wrote Hong Kong-based Enoch Fung, an economist at Goldman Sachs, in a research note yesterday. There's "positive cyclical catalysts for the Taiwan dollar."

The NT dollar rose 1 percent to NT$30.25 per US dollar as of 3:36pm in Taipei, and has climbed 7.2 percent since the start of the year. Stocks have risen 4.2 percent this year, data compiled by Bloomberg shows.

Ma will replace President Chen Shui-bian (陳水扁) who has restricted investments in China, Taiwan's biggest market, due to a dispute over sovereignty. Democratic Progressive Party Presidential hopeful Frank Hsieh (謝長廷) favored a more cautious approach than Ma to relations with China.

"Breakthroughs in cross-straits [sic] policies could lift potential growth via productivity gains and domestic investments," the research note said.

Goldman expects growth to accelerate to 4.6 percent in 2009 from an expected 3.8 percent this year.

The widening interest rate advantage over the US, imported inflation and rising currencies in the region, especially the Chinese yuan, will also strengthen the NT dollar, Fung wrote.

Taiwan will raise its benchmark borrowing costs by 12.5 basis points to 3.5 percent at its next meeting on Friday, Fung said. The US rate is 2.25 percent.