Thu, Oct 21, 2010 - Page 12 News List

Central bank stressing ‘moral suasion’

MONITORING MOVES:Bank chief Perng Fai-nan told lawmakers that there was about NT$370 billion in ‘hot money,’ but the FSC was helping reduce stock borrowing margins

By Ted Yang  /  Staff Reporter

Central bank Governor Perng Fai-nan (彭淮南) said yesterday that there’s about NT$370 billion (US$11.95 billion) parked in Taiwan and that the bank would continue to adopt moral suasion to rein in excessive volatility of short-term capital flows.

Funds held by foreign investors without being invested in the local bourse are about NT$520 billion, including NT$210 billion in NT dollar deposit accounts, NT$60 billion in stock borrowing margins and NT$250 billion in two-year public debt, Perng said.

“After deducting NT$150 billion that is allowed as working capital by law, the remaining NT$370 billion is suspected to be ‘hot money,’” Perng said during a legislative question-and-answer session.

On April 29, central bank Deputy Governor George Chou (周阿定) said there was US$10 billion in hot money in the country.

Perng said the tactic of moral suasion has been well-received and “effective” in helping cut hot money flows, adding that the Financial Supervisory Commission (FSC) was monitoring hot money movements in and out of the country.

In August, the FSC amended regulations to ban foreign investors from paying stock borrowing margins in the New Taiwan dollar with an intention to profit from exchange rate changes.

“The ban has cut the amount of the nation’s stock borrowing margins to NT$60 billion from NT$120 billion,” Perng said. “The figure will continue to drop.”

The stock borrowing margin is paid by a securities firm as needed for stock borrowing transactions when borrowing from the holders of the subject securities or selling short in an exchange market.

Perng, however, played down the possibility of slapping a Tobin tax on speculative funds, saying that imposing a hot money tax doesn’t fall under the central bank’s jurisdiction.

This is in line with a statement the Ministry of Finance released on Tuesday night, saying that to levy a hot money tax would be “too slow to meet a pressing need,” as it needs to go through legislative reviews.

After all, advanced countries have yet to impose similar taxes, except for Brazil and Thailand, the ministry said. Brazil doubled a tax on foreign bond purchases on Oct. 4 while Thailand levied a 15 percent withholding tax on capital gains on government bonds on Tuesday last week.

Meanwhile, Perng said that China’s surprise interest rate hike of 0.25 percent on Tuesday night would help improve the health of its financial market in the long run, although China’s real interest rate is still negative.

Asked whether Taiwan will follow suit to raise interest rates, Perng said that it depends on economic conditions at the time and that the nation has raised its policy rates twice already this year.

In other developments, the governor said that the central bank has no plans to buy more gold as it already accounts for 4.8 percent of Taiwan’s foreign reserves, compared with 1.5 percent in China and 0.2 percent in South Korea.

“China and India bought gold in the past year, while Switzerland and Germany sold the metal, he said.

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