Tue, Mar 20, 2012 - Page 12 News List

Central bank expected to hold rates

WAIT AND SEE:Although fuel and utility prices are rising, the bank is likely to wait for more definite signs of inflation to emerge before it raises rates, given sluggish demand

By Amy Su  /  Staff Reporter

The central bank is likely to keep key interest rates unchanged at this year’s first quarterly board meeting on Thursday, as the nation has yet to fully recover its economic momentum, based on current economic indicators, economists said yesterday.

The central bank is expected to keep its policy rates unchanged for the third straight board meeting, with the rediscount rate at 1.875 percent, the collateralized loan rate at 2.25 percent and the unsecured loan rate at 4.125 percent.

“Generally, the market consensus is that the bank will not change key interest rates at the board meeting this week,” Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said by telephone.

Although the global economy has bottomed out, external demand remained weak in the first two months and it was no time to be raising policy rates, Phoo said.

However, the central bank would also be keeping in mind inflation, in light of the recent rise in crude oil prices, and this would be the other factor affecting the central bank’s decision, he said.

The bank would be more likely to hold rates unchanged until annual growth in consumer prices really did show signs of inflation, Phoo said.

He said Standard Chartered Bank expects the central bank to hold rates steady for the rest of the year, and perhaps raise rates in the first quarter of next year depending on the degree of recovery in the economy and sentiment.

Taiwan Research Institute (台灣綜合研究院) president Wu Tsai-yi (吳再益) shared Phoo’s views.

“Under current economic conditions, the central bank does not have much leeway in its interest rate policy,” Wu said.

Wu said Taiwan’s economy has yet to fully bottom out, with private investment continuing on a downtrend, and the central bank would not exacerbate matters by increasing rates.

Markets are waiting to see what measures the government takes to rationalize fuel and utility prices, and the effect this will have on consumer prices in the near term, but there is as yet no sign of inflation, Wu said. The bank will act prudently and take a long time to evaluate the situation before it raises rates, he added.

Meanwhile, the central bank is expected to continue the selective credit control measures that have been in force for more than a year to cool the housing market, said Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei.

“Although the measures have had a definite impact on property transactions, the central bank may leave them in place, since they have not driven down [urban] real-estate prices very much,” Cheng said.

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