Taiwan’s top monetary regulator said yesterday the nation would not enter an era of zero interest rates like the US and other countries in the fight against recession and predicted the economy would start to pick up in the second half of next year.
Central bank Governor Perng Fai-nan (彭淮南) made the statement when asked by lawmakers in the Finance Committee after his agency cut benchmark rates five times this year in an attempt to curb the economic downturn.
“It is impossible for the nation’s interest rate to become zero,” Perng said.
“The rate cut is a monetary instrument to stimulate domestic demand and other measures are necessary to achieve that end,” Perng said.
The series of rate cuts slashed the discount rate from a level of 3.635 percent in September to the current 2 percent with analysts expecting the central bank to lower the rate to 1 percent next year.
Perng, who has said his agency would continue to ease monetary policy, said that while the nation’s interest rates were higher than those of Japan, they were relatively low compared with other countries.
The governor cited the US as an example, saying that its long-term borrowing rates were higher than those in Taiwan except for the overnight lending rate, which was set between zero and 0.25 percent.
Defending his policy, Perng said there were time lags between rate cuts and their impact.
“Rate cuts alone cannot lift the economy,” he said. “There must also be supporting fiscal measures. The government is seeking to accomplish that through aggressive borrowing.”
The Chinese Nationalist Party (KMT) administration pumped NT$58.3 billion (US$1.76 billion) into the economy this year to strengthen infrastructure facilities and will implement the NT$85.6 billion shopping voucher plan next month.
A four-year NT$500 billion spending program is also expected to clear the legislature next month.
Echoing the statistics agency, Perng said the stimulus may help reverse the economy in the second half of next year.
“Hopefully, the downturn will hit bottom in the middle of next year,” he said when asked to comment on the economic situation.
Perng promised to closely watch capital flows after KMT Legislator Lai Shyh-bao (賴士葆) voiced concern over inflows of hot money to speculate on the local currency.
The governor said exporters preferred a weak New Taiwan dollar to make their products more competitive abroad, while importers favored a strong currency to lower costs.
“The central bank cannot please everybody, but will look to market mechanisms,” he said, adding that the greenback would remain a main anchor currency.