The central bank yesterday raised its key interest rates by 0.125 percentage points (ppt) for the fourth straight quarter on the back of continuing economic growth and rising inflationary pressure. However, the bank did not further tighten credit controls on land purchases and mortgages, indicating that the threat of a property bubble could be subsiding.
The latest hike brought the discount rate to 1.75 percent, the collateralized loan rate to 2.125 percent and the unsecured loan rate to 4 percent, effective today, the central bank said.
“The economy’s continuing growth momentum, as well as concerns over commodity prices, led to the decision to raise interest rates,” central bank Governor Perng Fai-nan (彭淮南) told a media briefing after yesterday’s quarterly board meeting.
The bank kept the same pace of increases as in the past three quarters with a 0.125ppt hike — and not 0.25ppt as some had forecast — as inflationary pressure remained relatively low and stable compared with other countries, Perng said.
Inflation rose 1.1 and 1.3 percent in January and February respectively, and is forecast to rise by 2 percent for the full year, Directorate-General of Budget, Accounting and Statistics data showed.
The bank issued a total of NT$1.2 trillion in negotiable certificates of deposit (NCD) from April last year to last month, which helped absorb excess liquidity in the banking system, Perng said.
He said the series of NCD issues was tantamount to increasing the reserve requirement ratio by 4.55 percentage points and contributed to easing inflationary pressure.
The central bank did not say whether it would continue issuing NCDs, but Perng reiterated that “the bank would use all possible tools to maintain stable commodity prices.”
The bank did not introduce new measures to tighten credit controls over land purchases and second-home mortgages as the measures in October had apparently curbed property speculation, Perng said.
“We will keep an eye on how the proposed luxury bill goes, as well as how the housing market is affected, to see what the next step is,” he said.
According to central bank data, local lenders’ concentration on housing-related loans had improved, with the ratio of real-estate loans to total loans falling to 37.39 percent in February from 38.41 percent in June last year. In several Greater Taipei areas where housing prices had surged substantially, the ratio of new mortgage loans to total mortgage loans fell to 59.9 percent from 64.4 percent for the same period, the data showed.
“The central bank is satisfied with diminishing risks from rising housing prices,” Cheng Cheng-mount (鄭貞茂), chief economist of Citigroup in Taipei, said yesterday in a note.
Donna Kwok (郭浩庄), who covers Greater China economies for HSBC in Asia, said the central bank’s steady pace of rate hikes met market expectations, as Taiwan was one of the earliest to start raising rates.
“The bank will wait to assess the full impact of a proposed luxury tax on property buyers and recent tightening of bank mortgage lending before accelerating its rate hike cycle as the key means for cooling the property market,” Kwok said in a research note yesterday.
Cheng and Kwok said they expected the central bank to maintain its gradual pace of monetary normalization, with increases of 0.125 percentage points in each of the remaining quarters this year.