Sat, Jul 07, 2012 - Page 13 News List

No rate cut expected: analysts

LONE RANGER:Economists suggested the central bank would not follow the EU’s and China’s lead and would maintain borrowing rates on positive second-half expectations

By Amy Su  /  Staff reporter

The central bank is not expected to follow in the steps of the European Central Bank and the People’s Bank of China in cutting interest rates in the second half of the year in view of improving economic momentum and rising inflationary pressure, economists said yesterday.

Central banks in Europe and China cut their interest rates in succession on Thursday, hoping to hold up their own economic momentum and further stimulate the global economy.

“Taiwan’s central bank will be happy to see these positive moves led by other countries,” Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei, said by telephone.

However, Cheng said the central bank may maintain its policy interest rates at the current 1.875 percent in the second half, as Taiwan’s economic momentum is not expected to slide further.

“We still forecast Taiwan’s economy to rebound in the second half from the first half,” Cheng said.

Private think tank Polaris Research Institute president Liang Kuo-yuan (梁國源) shared Cheng’s views.

“Despite the nation facing some troubles from an economic slowdown, the central bank will also be concerned about rising headline inflation,” Liang told the Taipei Times.

The nation’s consumer price index rose 1.77 percent last month from a year earlier, marking the fastest expansion since January, on the back of higher food prices, the Directorate-General of Budget, Accounting and Statistics said on Thursday.

With the coming of the typhoon season in the third quarter, Liang said the central bank will monitor upside risks to inflation, which make it unlikely that it will cut interest rates in the near future.

Since the central bank has been imposing stricter credit-tightening measures on luxury housing loans to curb property speculation and maintain financial stability, it may also not want to see speculative property transactions go up following any reduction in interest rates, Liang added.

Economists said the rate cuts by central banks in Europe and China were only the first step for them to stimulate their economy.

“Both Europe and China will impose more easing measures in the second half of the year,” Cheng said.

“A single move of cutting rates may not offer enough momentum for their economy,” he added.

Qu Hongbin (屈宏斌), co-head of Asian economic research at HSBC Global Research, said easing measures will be focused mainly on several fronts in China in the near future, such as cutting the reserve requirement ratio.

“Once these measures filter through, China’s growth should recover to about 8.5 percent in the coming quarters,” Qu said in a research note.

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