The unfolding nuclear crisis in Japan will make Taiwan’s central bank more cautious in setting interest rates next week, although it is too early to gauge the disaster’s impact on Taiwan’s economy, Standard Chartered Bank said yesterday.
The central bank, which is due to hold its quarterly board meeting on Thursday next week, might hike its key interest rate by 12.5 basis points, a move that will not have a significant impact on the economy while sending a consistent message about its concern over asset prices, Standard Chartered’s Taipei-based economist Tony Phoo (符銘財) told a media briefing.
The interest rate adjustment, in line with a market consensus, would bring the rediscount rate to 1.75 percent, from the current 1.625 percent.
“The March 11 earthquake in northeastern Japan warrants a cautious approach,” Phoo said, as -Japan is the nation’s second--largest trading partner, with bilateral trade totaling US$69 billion last year.
Japan is a key global supplier of electronic components and materials, accounting for 20 percent of Taiwan’s imports last year, Phoo said.
“While the quake may not have a significant or lasting impact on Taiwan’s economy, a prolonged power outage there may cause problems to the technology sector here,” he said.
Technology output accounts for about 35 percent of Taiwan’s GDP, and technology stocks take up about 50 percent of the local bourse, Phoo said.
Against this backdrop, the central bank may stand put on the slow pace of monetary tightening — raising interest rates by 0.125 percentage points each quarter — despite heightened inflationary pressures in the region.
The government’s plan to tax short-term property transactions should also ease pressure on the central bank to take more -drastic steps to rein in real-estate prices.
“The proposed luxury tax is more powerful and effective than selective credit controls in cooling the property market,” Phoo said.
A proposed 10 percent tax would apply to properties resold within two years of purchase. The tax rate would rise to 15 percent of the transaction price if the property is sold within one year of purchase.
So far, the central bank has limited its role to risk control enhancement, lowering loan-to-value ratios for second-home loans in areas with soaring housing prices, Phoo said.
The central bank’s “macro--prudential approach” has helped to keep the economy on a recovery track this year after external demand showed signs of a -slowdown as export orders last month showed, he said.
However, oil prices pose another worry that may derail economic growth in Taiwan and on the world stage, said Nicholas Kwan (關家明), Standard Chartered’s head of research on East Asian economies.
All economic estimates will have to be revised if prices for crude oil climb near US$150 a barrel, he said.
In Asian trading yesterday, oil prices were trading near US$105 a barrel.
Kwan expected Japan’s GDP to drop 0.5 percentage points in the wake of the massive earthquake, but said he believed that reconstruction would help spur a V-shaped rebound later.
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