Taiwan’s government bonds fell by the most this week after the central bank lifted interest rates on certificates of deposit and signaled it may further increase borrowing costs to tame inflation.
The Central Bank of the Republic of China (Taiwan) raised the discount rate on 10-day loans to banks by 0.125 percentage point to 1.75 percent yesterday. Governor Perng Fai-nan emphasized after the decision that the government’s 2 percent forecast for consumer-price growth this year exceeds the level of the benchmark rate.
“The rise in rates of certificates of deposit was more than last time, and was a bit unexpected,” said Artie Yao, a debt trader at First Securities Inc. in Taipei. “Our view is the central bank will continue to raise its rate when the board meets again in June.”
The yield on the 1.375 percent note due March 2021, the most-traded government security, increased one basis point to 1.362 percent as of 10:08 a.m. in Taipei, according to Gretai Securities Market, the island’s biggest exchange for debt. That’s the biggest rise since March 28. The rate advanced one basis point, or 0.01 percentage point, this week.
A government report next week will show consumer prices rose 1.7 percent in March, after a 1.3 percent gain in February, according to the median estimate of economists surveyed by Bloomberg.
The central bank raised the rates for 30-day certificates of deposit by seven basis points to 0.81 percent, increased the rate on 91-day debt by eight basis points to 0.86 percent and lifted the 182-day bills by nine basis points to 0.97 percent, the Taipei Interbank Money centre said today. That compares with a five-basis point increase for all three securities when the monetary authority last raised borrowing costs by 12.5 basis points on December 31.
The Taiwan dollar strengthened 0.2 percent for the day and 0.4 percent for the week to NT$29.375 against its US counterpart, according to Taipei Forex Inc. It touched NT$29.355 earlier, the strongest level since March 9.-By Andrea Wong