Thu, Mar 25, 2010 - Page 11 News List

Taiwan may exit monetary stimulus, hold rates: analysts


Taiwan may follow other Asian central banks and begin withdrawing monetary stimulus this week to cool asset prices, while keeping interest rates unchanged, Goldman Sachs Group Inc and JPMorgan Chase & Co said.

There is a “chance of a hike” in the reserve requirement ratio back to mid-2008 levels, Enoch Fung (馮殷諾), an economist at Goldman Sachs in Hong Kong, said in a report.

Central bank Governor Perng Fai-nan (彭淮南) will leave the discount rate on 10-day loans to banks at 1.25 percent when his board meets at 3pm in Taipei today, all nine economists surveyed by Bloomberg News said.

The central bank cut the required reserve ratio in September 2008 to inject liquidity into the market, a move that has helped shares surge 52 percent in the past year and home loans soar. It’s begun to withdraw some of that cash by selling short-term debt to financial institutions.

Taiwan “has focused on managing the liquidity conditions, especially given growing asset inflation concerns,” by issuing central bank certificates of deposit, said Grace Ng (吳向紅), a Hong Kong-based economists at JPMorgan. “A potential additional policy tool that the central bank might consider in the near term could be raising the reserve requirement ratio.”

The central bank slashed interest rates by 2.375 percentage points from September 2008 to February last year as the economy experienced its worst recession since records began in the 1950s.

Taiwan’s unemployment rate declined for a sixth month last month, the statistics bureau said on Monday. Perng told lawmakers last week that consumer prices were in an “acceptable range.”

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