The central bank yesterday raised its key interest rates by 0.125 percentage points for the third straight quarter and tightened credit controls on land purchases and second-home mortgages in its continued efforts to further curb property speculation.
To curb rapid inflow of “hot money” that has driven the local currency higher, the monetary policymaker also sharply increased reserve ratios for deposits by foreign investors and denied them any interest.
It was the latest in a series of measures adopted by the central bank since the New Taiwan dollar began appreciating. At the close yesterday it had gained 5.48 percent against the greenback since the beginning of the year, a rise that has hurt the competitiveness of local exporters, such as flat panel makers.
The rate increases will lift the discount rate to 1.625 percent from 1.5 percent, the rate on collateralized loans to 2 percent and the rate on unsecured loans to 3.875 percent, starting today, the central bank said.
“We decided to increase rates again after the economy posted stable growth, the unemployment rate fell to pre-financial crisis levels and wage levels started to recover,” central bank Governor Perng Fai-nan (彭淮南) told a media briefing after yesterday’s quarterly policy meeting.
However, the bank voiced concern that the amount of loans for construction projects and property transactions had increased in October after receding slightly following the introduction of selective credit controls in June.
To address the problem, the central bank asked lenders to lower second-home mortgage loans to 60 percent of the property’s value, from 70 percent, for properties in Greater Taipei, Tamsui (淡水), Linkou (林口) and Sansia (三峽).
In addition, the central bank capped loans for purchasing land at 65 percent of the cost of acquisition or assessed value, whichever is lower, and banks must hold back 10 percent of the loan until construction work begins.
“Targeted tightening measures are more effective than across-the-board interest rate increases,” Perng said. “The former measure is aimed at speculators, while the latter will affect the general public.”
“We believe the central bank’s latest credit tightening measures, stricter rules on granting bank loans in particular, will help curb speculative land purchases by local developers and speculative investment in property,” said Jeffrey Huang (黃增福), a manager at local housing agency Evertrust Rehouse Co (永慶房屋). “In the short term, the property market will cool down a bit.”
However, in the medium and long-term, the market would still enjoy modest growth on the back of relatively low borrowing costs, ample idle liquidity and robust economic growth, Huang said.
“The 12.5 basis point increase in key interest rates will not greatly increase the burden of home buyers,” Huang said.
Also starting today, the required reserve ratios on foreign investors’ demand deposits will surge to 90 percent, from 9.775 percent, for deposits that exceed yesterday’s positions, the central bank said. The central bank raised the reserve ratio for deposits below that level to 25 percent.
Lenders may not receive interest on the funds, which amount to approximately NT$200 billion (US$6.62 billion), Perng said.
The new measures came after the local currency closed at NT$30.217 against the US dollar in Taipei yesterday, the highest rate since March 2008.