Central bank Governor Perng Fai-nan (彭淮南) said yesterday that about NT$70 billion (US$2.37 billion) in hot money had departed Taiwan since October and that the bank would continue to rein in excessive volatility of the remaining short-term capital inflows.
Based on the central bank’s statistics, foreign investors have parked about NT$453.7 billion in Taiwan. That figure includes NT$236.3 billion in New Taiwan dollar deposit accounts and NT$217.4 billion in two-year government bonds, Perng said.
After deducting NT$150 billion allowed as working capital by law, the short-term capital inflows suspected to be “hot money” total about NT$303.7 billion, Perng said.
In October, the central bank estimated that NT$370 billion in hot money had been parked in Taiwan.
“The decreasing amount of stock borrowing margins was the main reason driving down hot money,” Perng said during a legislative question-and-answer session.
The stock borrowing margin, a form of hot money, is paid by a securities firm as needed for stock borrowing transactions when borrowing from the holders of the securities or selling short in an exchange market.
In August last year, the Financial Supervisory Commission (FSC) amended regulations to ban foreign investors from paying stock-borrowing margins in NT dollars with the intent of profiting from changes in the exchange rate.
“The ban has cut the full amount of the nation’s stock borrowing margins by NT$120 billion,” Perng said
Also, the expiration of public debt resulted in a decrease from NT$253.5 billion to NT$217.4 billion in October, he said.
“Following the continuing expiration, the figure will continue to drop,” he said.
However, Chinese Nationalist Party (KMT) Legislator Lai Shyh-bao (賴士葆) questioned whether the amount of speculative inflows was still too high, saying property prices in specific urban areas continued to rise at unacceptable rates.
“The central bank should raise the interest rate to increase costs in real-estate investment and thus prevent property prices from bubbling,” Lai said.
Perng reiterated that preventing a bubble property market depends not only on central bank policy, but also on cooperation from other government agencies.
“The luxury tax bill proposed by the Ministry of Finance would be more effective, as it will curtail speculators’ willingness to sell houses in the short term,” Perng said.
Citing IMF research, Perng said that countries such as Finland and New Zealand raised interest rates between 2001 and 2006, but their house prices still grew during that period.
While interest rate is not the sole factor influencing housing prices, the central bank will increase the rate gradually and appropriately, as higher prices of global raw materials have led to rising pressure of imported inflation, Perng said.