The US Federal Reserve’s decision to delay raising interest rates has opened a policy window for Taiwan and South Korea to cut borrowing costs as the risk of outflows drops.
Sovereign bonds from the two Asian economies rallied yesterday after the Fed refrained from raising borrowing costs, while signaling a move is still likely this year. Monetary tightening in the US would push up US Treasury yields, exacerbating outflows from developing nations. Taiwan and South Korea are both struggling with a slump in exports amid a slowdown in China, their biggest market.
“A delayed hike gives Asian central banks more room to support liquidity,” especially Taiwan and South Korea, Societe Generale SA Hong Kong-based head of Asia ex-Japan rates strategy Frances Cheung (張淑嫻) said. “Even if it’s not an explicit rate cut, they can at least maintain loose liquidity.”
The yield on Taiwan’s sovereign bonds due 2020 fell six basis points, the most for benchmark five-year notes in almost a year, to 0.82 percent as of 12:16pm in Taipei, according to Taipei Exchange prices.
The three-year yield in South Korea dropped five basis points, the biggest decline since May, to 1.64 percent, Korea Exchange prices showed.
Traders now see a 44 percent chance the Fed will raise rates by December, while 18 percent expect a move to come next month.
In Taiwan, where rate reviews are held quarterly, four of 21 economists surveyed by Bloomberg last month predicted a cut on Thursday next week, while four said the move would come in December. The rest saw no change.
Seven of 23 economists expect the Bank of Korea (BOK), which has monthly policy meetings, to lower its key rate by 25 basis points from a record-low 1.5 percent by year’s end, while the remainder forecast it will stay on hold.
The window for Taiwan to ease is this month, and that for South Korea is next month or November, BNP Paribas SA Hong Kong-based economist Mark Walton said before the Fed decision.
The Bank of Korea said that while it sees a gradual improvement in the economy, there are still uncertainties including China’s slowdown and instabilities in emerging markets, according to its policy statement this month.
“If the timing for Fed tightening policy is pushed back, any burden the Bank of Korea would have when they lower interest rates, including foreign-investor outflows, eases,” Daewoo Securities Co Seoul-based fixed-income analyst Yoon Yeo-sam said. “Government bond yields will head downwards amid bets for BOK easing.”
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure