Central bank Governor Perng Fai-nan (彭淮南) said yesterday that consumer prices were his top concern when setting interest rates and that he saw no inflationary pressure on the horizon.
The nation’s top monetary regulator also said the New Taiwan dollar remained relatively stable compared with other currencies, despite gaining 2 percent in the third quarter.
“The central bank interest rate adjustments will be guided chiefly by domestic consumer prices in the coming six months,” Perng told a legislative hearing. “The bank is especially concerned about the fluctuation of the core consumer price index [CPI].”
The core CPI, which excludes items prone to volatile price movements such as energy, vegetables, fruit and fish, is used to project long-term inflation.
Perng said commodity prices were expected to remain stable over the next six months.
The bank has since February kept the rediscount rate at its record low of 1.25 percent.
Chinese Nationalist Party (KMT) Legislator Lai Shyh-bao (賴士葆) asked Perng if the central bank would consider hiking rates to rein in excess capital inflows that had inflated stock and property prices lately.
Perng attributed the bullish stock and property markets to technical rebounds after quarters of downward price correction. He said he would monitor real estate prices.
The governor said the local currency was relatively stable, although it was outperformed by the South Korean won, the euro, the Australian dollar and the New Zealand dollar this year.
However, “the NT dollar has a long-term competitive edge over the South Korean won because its pace of depreciation is lower,” Perng said.
The NT dollar gained 0.54 percent, or NT$0.176, to NT$32.2 yesterday on turnover of NT$2.208 billion (US$68.85 million), foreign exchange data showed.
Meanwhile, in a separate statement, the central bank rebutted a report in yesterday’s Chinese-language Commercial Times quoting it as saying that the NT dollar was “undervalued” and warning exporters to take “precautionary measures.”
“The exchange rate should be decided by market supply and demand,” the statement said. “The bank maintains order in the market in the case of irregular or seasonal factors causing excessive volatility.”
Tigr Cheng (程裕城), a strategist at Polaris Securities Co (寶來證券), said that according a statement the central bank prepared for lawmakers yesterday, the NT dollar’s real effective exchange rate — which factors in price level differences between trading partners — was more than 5 percent below its 36-month moving average.
That means the currency is “technically undervalued,” Cheng said.
In his report to lawmakers, Perng also said talks with China over the currency settlement mechanism were ongoing and he could not speculate on when the measure would be implemented, as the matter involves central banks on both sides. The talks are not tied to the signing of a memorandum of understanding over market access, he said.
Once a direct clearance regime is in place, exchange costs between the NT dollar and the yuan will be lowered from 1 percent to 0.25 percent, Perng said.
Yuan exchanges amounted to 10.1 billion yuan (US$1.48 billion) since the government allowed trading here in June last year.
The central bank said last week that branches of Taiwanese lenders in Hong Kong could accept yuan deposits.
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