The US Federal Reserve’s launch of a new round of bond buying may provide a short-term market boost, but it will have a bearish effect on Taiwan’s economy in the longer term, economists said yesterday.
“The US Fed’s move will inspire the stock market and further boost sentiment on the housing market in the near term,” Gordon Sun (孫明德), director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research (台灣經濟研究院), told reporters on the sidelines of an economics conference yesterday.
However, in the long run, Taiwan’s economy may be struck down by the US’ third round of quantitative easing (QE3) when it affects consumer prices and exports, Sun said.
Sun said an expected fall in the US dollar against other currencies, including the New Taiwan dollar, in the future may again slow down the growth momentum of Taiwanese exports.
Exports in the first eight months of the year fell 5.6 percent from a year ago to US$196.34 billion, the Ministry of Finance reported last week. The ministry warned at the time that full-year exports could post their first annual contraction since 2009.
The US’ quantitative-easing measures may also push up the prices of crude oil and bulk commodities, which will heighten inflationary pressures around the world, including in Taiwan, Sun said.
Against this backdrop, the central bank should maintain a flexible strategy to stabilize the local currency and maintain the nation’s economic competitiveness, he said.
Chiou Jiunn-rong (邱俊榮), a professor of economics at National Central University, said ample liquidity in the US after QE3 will have a spillover effect on other countries, which is likely to boost the value of non-US dollar currencies.
Chiou said he was afraid that countries that are dependent on exports for economic growth would step up efforts to devalue their currencies by taking idle money out of the market to strengthen their global competitiveness.
These efforts to absorb excess liquidity could neutralize the effect of the Fed’s monetary-easing measures, he said.
Chiou added that the previous two rounds of quantitative easing by the Fed failed to significantly boost the economy.
On interest rates, Chung-Hua Institution for Economic Research (中華經濟研究院) president Wu Chung-shu (吳中書) said the central bank might keep its policy rates unchanged at its board meeting on Thursday next week, as domestic economic sentiment remains weak.
Wu said the inflationary pressure facing the nation this year is still mainly driven by rising food prices because of heavy rains.
Should the weather clear up in the fourth quarter, annual growth in inflation could remain at about 2 percent this year, he said.
The consumer price index rose 3.42 percent last month from a year ago and 1.84 percent in the first eight months of the year, Directorate-General of Budget, Accounting and Statistics data showed.
The central bank yesterday declined to comment on how it would react to the Fed’s new quantitative-easing strategy before its board meeting.
Additional reporting by CNA