The central bank is not expected to extend its selective credit control measures to cool down the housing market at its board meeting on Thursday as the government’s proposed luxury tax begins to have an effect on real-estate transactions and prices, economists said.
Chen Miao (陳淼), director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research (TIER, 台灣經濟研究院), said the central bank should not extend its credit controls because doing so might cause the housing market to cool too much.
“For many people, their house is their main asset. If the housing market is cooled too much, it might hurt the value of people’s assets and impact negatively on the nation’s economy,” Chen said by telephone yesterday.
Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said the central bank would not further its credit controls on lenders’ land and construction loans on the back of the effectiveness of the proposed luxury tax.
“The proposed luxury tax is more powerful and effective than selective credit controls in controlling the property market, so the bank would not need to take more intense measures to rein in real--estate prices,” Phoo said yesterday.
The Ministry of Finance is expected to start implementation of the luxury tax on July 1, which will impose a 10 percent to 15 percent tax on real-estate sales that take place within two years of the initial purchase as the government seeks to deter property speculation.
“Therefore, the central bank would be able to play a secondary role in cooling down the house market,” Phoo said.
However, Cheng Cheng-mount (鄭貞茂), chief economist of Citigroup in Taipei, said the central bank could further tighten measures on real-estate developers at its board meeting this week.
“The bank has shifted macro-prudential measures to real-estate developers, thus extending credit control measures to companies and developers from consumer mortgage loans,” Cheng said in his latest research report issued on Friday.
Further tightening on land and construction loan financing, as well as loans on unmarketable houses, might be applied at the bank’s meeting this Thursday, Cheng said.
As for the interest rate, economists generally believed that the central bank would raise the policy rate by 12.5 basis points amid strong economic growth and concerns about inflation.
That would bring the bank’s rediscount rate to 1.75 percent, from the current 1.625 percent rate, following three interest rate hikes over three straight quarters.
“The bank would raise the policy rate amid the continuing economic recovery and active circulation of currency,” Chen said.
The bank actually has more room for a monetary adjustment this time, such as a hike of 25 basis points, in view of increasing inflationary pressure following Japan’s earthquake, he said.
“Potential demand for commodities from disaster-stricken regions would drive up Taiwan’s inflationary pressure,” Chen said.
Even so, the bank may maintain a steady hike of 12.5 basis points without dampening economic growth, he added.
Barclays Capital said it -expected the central bank this week to increase its policy rate by 12.5 basis points and raise the interest rate for negotiable certificates of deposit by 9 basis points to give more room for commercial lenders to raise their customers’ rates.
If inflationary pressure continues to rise, the central bank may raise its policy rate by another 25 basis points in June, Barclays said in a research note on Thursday.
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