The central bank yesterday kept its benchmark interest rates unchanged as expected, in view of the still-weak growth momentum in the domestic economy and the increasing risk of inflationary pressure in the near term.
The bank’s discount rate will remain at 1.875 percent, with the collateralized loan rate and the unsecured loan rates held at 2.25 percent and 4.125 percent, respectively.
This makes it three straight quarters that the central bank has left its policy rates unchanged, after the global economy started to slow down in the second half of last year.
Photo: Liu Hsin-de Taipei Times
“Consumer prices are the first priority of the central bank’s interest rate policy,” central bank Governor Perng Fai-nan (彭淮南) told a media briefing after the bank’s quarterly board meeting.
Taiwan’s consumer price index (CPI) showed a mild increase of 1.31 percent in the first two months from a year ago, but inflationary pressure in the second half of the year may rise, as stable weather during the same period of last year lowered the comparison basis, the bank said in a statement.
The statement said that although the nation’s economic momentum for this year may be lower than that for last year because of global uncertainties, the improvement in the eurozone’s debt crisis and the US’ economic recovery have helped stabilize overall sentiment.
However, the slowing economy in China may become the bank’s focus in the near future, Perng said.
In view of these factors, Perng said a “moderate easing” monetary policy and steady interest rates would for now help the bank stabilize both consumer prices and the financial system.
Faced with foreign capital inflows and the high excess of domestic savings, the central bank will continue to issue negotiable certificates of deposit (NCD) to absorb excess liquidity, he said.
Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said the central bank’s decision showed policy makers appear less pessimistic about the outlook.
“This is quite important in the sense that the central bank has shown in the past to be very good at predicting the growth cycle,” Phoo said in a note.
Since recent indicators generally showed Taiwan’s economy is nearing the trough of the current down cycle, the central bank may keep policy rates on hold for the rest of this year in a bid to balance risk against soft global demand as well as concerns over rising inflation, Phoo said.
The central bank yesterday also said that Taiwan and China may sign an agreement on a cross-strait currency settlement mechanism for the New Taiwan dollar and the Chinese yuan in the first half of the year.
This will facilitate the flow between offshore banking units (OBU) of Taiwanese banks and their counterparts in China, and expedite the launch of Chinese yuan business for domestic banking units (DBU), allowing a direct exchange of the two currencies.
Raymond Yeung (楊宇霆), a Hong Kong-based economist at ANZ Research, said the establishment of a clearing agreement for the Chinese yuan would accelerate the development of the Chinese yuan’s offshore business in Taiwan.
“We expect some of the flow currently routed through Hong Kong will move to Taiwan [after its establishment],” Yeung said.
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