Taiwan has imposed restrictions on foreign investment in corporate bonds in a move seen as an effort to curb speculation in the island's currency.
The Financial Supervisory Commission (FSC) will cap overseas investors' holdings of company debt and bank debentures at 30 percent of their Taiwanese securities from Wednesday, according to a document sent to lenders and obtained by Bloomberg News on Tuesday. Previously, there was no limit. Such buyers' holdings of government bonds, money-market instruments, and derivatives are already restricted to 30 percent.
Taiwan's dollar has strengthened 1.7 percent against the greenback in 2015, in Asia's best performance, on speculation the central bank will refrain from joining a global wave of monetary easing. It has also rallied against Japan's yen and South Korea's won, harming the island's exporters who compete with their counterparts from those countries. Taiwan attracted $70 billion of net inflows in the first three months of the year, FSC data show.
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"As fund inflows have been strong recently, the move was probably to restrict the channels through which foreign investors can park their funds," said Woods Chen, an economist at Ta Chong Bank Ltd. in Taipei. The government is "also hoping to alleviate the ample liquidity," he said.
This month, the one-month Taipei interbank offered rate fell to the lowest level since 2011.
Taiwanese authorities have a track record of taking steps to deter currency speculation and reduce volatility. The country's stock exchange revoked the registration of a foreign institutional investor for the first time in 2013 for parking funds without using them to buy shares.
The restrictions may push up yields on local-currency corporate bonds maturing within two years, as such notes are popular with foreign investors, said Morgan Tsai, a debt trader at KGI Securities Co. in Taipei. There is currently no official data showing overseas holdings of domestic debt.
The local dollar fell 0.2 percent on Tuesday to close at NT$31.173 against the greenback, Taipei Forex Inc. prices show.
–With assistance from Argin Chang in Taipei.
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