The European Central Bank (ECB) warned yesterday that inflation still threatened the eurozone but said it wanted more data on financial market uncertainty before deciding whether to raise interest rates.
"The medium-term outlook for price stability remains subject to upside risks," the ECB said in its monthly bulletin, repeating comments made last week by president Jean-Claude Trichet when its key interest rate was left unchanged at 4.0 percent.
But "given a high level of uncertainty" in the wake of the US home loan crisis, "it is appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy," it added.
After the report was released, the euro hit a record high of 1.3927 to the dollar, which could help stem inflation but also curb eurozone economic growth.
The ECB had originally been expected to raise its main lending rate on June 6, but held off amid warnings that increasing the cost of borrowing in the eurozone would fuel tension within the global banking system.
But the bank said yesterday that fundamentals were strong in the 13-nation zone and that as a result, "the ECB's monetary policy stance is still on the accommodative side," which means it believed inflation could strengthen as well.
Additional indirect taxes, higher oil and agricultural prices and wage increases were among the factors that could push inflation higher, the bank said.
It repeated the ECB's growth forecast of 2.5 percent this year, compared with a previous forecast of 2.6 percent, and 2.3 percent next year, unchanged from its previous outlook.
But market volatility has not subsided substantially and the US Federal Reserve was expected to lower its key interest rate to boost an economy hit by defaults on the high-risk market for mortgages, also known as the subprime market.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
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