Thu, Sep 30, 2010 - Page 12 News List

Further monetary tightening warranted, analysts say

WAITING GAME:Many analysts feel that the time is ripe for a rate rise, although, others warn that such a move could hinder economic development next year


While the central bank is wary of short-term speculative capital inflows and slower global economic expansion, some analysts say that the nation’s strong economic data and still-overheating property market warrant further monetary tightening.

“Property speculation is still rife [in the greater Taipei area],” National Chengchi University economics professor Steve Lin (林祖嘉) said in a recent interview.

He predicted that the central bank might raise its policy rate today from the current 1.325 percent to 1.5 percent.

“Current economic growth is pretty strong. A rate hike of 0.125 percentage points will impact not so much [on the rise of the local currency] as on cooling down of the red-hot real estate market in Taipei,” Lin said.

Liang Kuo-yuan (梁國源), president of the Polaris Research Institute, agreed, saying that monetary policy should remain “consistent,” and that higher borrowing costs could help rein in soaring property prices in Taipei.

At its last board meeting on June 24, the central bank unexpectedly raised its benchmark rates by 0.125 percentage points, a move deemed by most analysts at chiefly reining in rocketing housing prices, rather than helping to maintain consumer price stability.

Some are concerned that a projected easing of economic growth in the US and Europe could outweigh a buoyant outlook for the local economy and prompt the central bank to join its South Korean counterpart in holding off on rate advances.

Lin Chien-fu (林建甫), an economics professor at National Taiwan University, however, downplayed the potential impact of slowing global growth on the nation’s prospects, saying that Taiwan’s economy will benefit from and be bolstered by China’s fast-growing economy.

“The [greater China] area is still very hot. The US’ economic problem is different from ours. If the central bank were not to raise interest rates this time, it would cause great risks in the domestic financial sectors,” Lin Chien-fu told the Taipei Times.

On Sept. 10, the central bank issued NT$100 billion (US$3.2 billion) in negotiable certificates of deposits to absorb excess funds in the market, but the yield recorded was the lowest in history at 0.624 percent, indicating that the market is still awash with liquidity.

“There’s still room for rate hikes by the central bank as liquidity in Taiwan is plentiful,” said Chen Miao (陳淼), director of the -macroeconomic forecasting center at the Taiwan Institute of Economic Research.

A quick look at the recent trend of an overnight interbank call-loan rate also shows that it still remains at historical lows, although it rose to a 20-month high of 0.217 percent on Tuesday, the central bank’s data showed.

The rising trend of an interbank rate signaled the central bank’s determination to control excess liquidity in the market and could serve as a harbinger of its rate hikes, Hsu Chih-chiang (徐之強), director of the Research Center for Taiwan Economic Development, said by telephone.

Nevertheless, a hike in interest rates at the moment also drew concern that it might attract more “hot money” into Taiwan and put pressure on the rise of the local currency, hurting the export--dependent economy.

Hu Sheng-cheng (胡勝正), a research fellow at Academia Sinica, said that Asian countries are at risk of an asset bubble as hot money flew into the region because of its robust growth.

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