The central bank yesterday kept its benchmark interest rates at current low levels, saying maintaining an easy monetary policy was necessary to spur economic growth.
The bank also left its money supply targets unchanged, although some quarters have expressed concern over excess capital.
“Considering the economic situation at home and abroad, we believe that current interest rates are appropriate and money supply growth is reasonable,” central bank governor Perng Fai-nan (彭淮南) told a media briefing. “Maintaining an easy monetary policy is favorable to speed up economic recovery without raising inflationary pressure.”
It is the third time since February that the central bank had decided at its quarterly board meeting to leave the rediscount rate at 1.25 percent, the rate on collateralized loans at 1.625 percent and the rate on unsecured loans at 3.5 percent.
PRO-GROWTH
Tony Phoo (符銘財), chief economist of Standard Chartered Bank (Taiwan) Ltd, said the central bank would maintain its pro-growth monetary stance and would only adjust the rates “when GDP, inflation and the job market return to pre-crisis levels.”
Phoo maintained his forecast that the rediscount rate would remain at 1.25 percent throughout next year, he said in an e-mailed statement.
Standard Chartered forecasts Taiwan’s economy to contract 5 percent this year, before returning to growth of 3.1 percent next year.
The central bank governor said yesterday that the commodity prices trend topped his concerns when reviewing interest rates. The Directorate-General of Budget, Accounting and Statistics forecast stable consumer prices for the rest of the year and next year. It expects inflation to dip 0.68 percent this year and rise 0.87 percent next year.
Perng said he saw no need to raise the bank’s targets for the M2, the broadest measurement of money supply, which gained 8.17 percent year-on-year last month because of capital inflow and a low base last year.
The government expects the M2, which includes the M1B, time deposits, time savings deposits and foreign currency deposits, to expand between 2.5 percent and 6.5 percent this year to meet the demand of economic activity.
Yen Tzung-ta (嚴宗大), head of the central bank’s economic research department, said M2 growth after seasonal adjustment stood at 6.36 percent from the end of last year and would head further down in the coming months.
“Most firms are unlikely to distribute dividends or bonuses this year in light of the downturn,” Yen said.
The narrower M1B gauge, which refers to currency held by the public and demand deposits, surged 22.14 percent last month compared with a year ago, as more funds flowed from time deposits to demand saving accounts, the data showed.
Perng dismissed the link between the M1B inflation and a stock market bubble, saying the presence of foreign funds had weakened the connection. Nonetheless, the central bank would try its best to keep money supply within the target zone, he said.
DILEMMA
Johnny Chen (陳擎宏), deputy manager of the economics and industry research department at First Commercial Bank (第一銀行), said the central bank is in a dilemma over handling idle funds.
“There is little the central bank can do to cope with excess capital,” Chen said by telephone. “Such moves may be seen as signs of tightening policy, which would be viewed as unfavorable to economic growth.”
ADDITIONAL REPORTING BY KEVIN CHEN
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