The nation's central bank may be forced to raise interest rates for the first time in four years, traders and economists said, citing a widening rate disparity with the US and the possibility that record oil prices will accelerate inflation.
Speculation about rates continued after the central bank issued a statement on its Web site, denying a newspaper report that its officials said they are under pressure to raise rates.
The Chinese-language Liberty Times reported Sunday that pressure is being placed on the central bank to raise interest rates, citing unidentified central bank officials.
Still, the country may need higher rates to prevent local investment from flowing to higher-yielding US-dollar securities after two rate increases by the US Federal Reserve, said economists such as Lucas Lee at Barits International Securities Corp (
Taiwan's benchmark government bond dropped yesterday on prospects of faster inflation. Monetary policy is decided at quarterly meetings, the central bank said in its statement. The next quarterly meeting is scheduled for late next month and hasn't been announced.
"The bank's statement didn't have much impact on existing expectations that the central bank may raise its interest rate by [between] 0.125 to 0.25 percentage points by year-end," said Jeremy Tang, a bond trader at Taipei-based Entrust Securities Co (
The US increased its key interest rate for overnight loans between banks by a quarter percentage point in June and again by the same amount this month, taking the rate to 1.5 percent.
Taiwan's key rediscount rate is at a record low 1.375 percent. The nation's central bank cut its key rate 15 times since December 2000. In 2001, the bank matched all 11 rate cuts by the US Federal Reserve.
The 2.375 percent bond maturing in March 2014 dropped 0.0614, or NT$61.40 per NT$100,000 face amount, to 95.5648. The 10-year yield rose 0.8 percentage point to 2.914 percent, according to Gretai Securities Market, the nation's over-the-counter market.
The nation's statistics bureau raised its 2004 inflation forecast to 1.5 percent from 0.8 percent on Friday. Taiwan has had three years of annual declines in consumer prices.
The government also lifted its 2004 economic growth forecast to 5.87 percent from 5.4 percent, after gross domestic product rose 7.7 percent in the second quarter.
The full-year forecast expansion would be the fastest since 1997.
"The central bank may match half of the US rate increases by raising its rates by 25 basis points in December, reflecting the impact of high oil costs without choking off the island's growth," said Jerry Ho, a currency trader at International Bank of Taipei (
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