Central bank Governor Perng Fai-nan (彭淮南) yesterday expressed optimism about a mild pickup in the economy, as major global and domestic economic institutes estimate the nation’s GDP will grow about 3 percent next year.
“[The nation’s] economy has moved on from the trough in the fourth quarter of this year,” Perng told a media briefing after the bank’s quarterly board meeting.
Perng further reiterated his expectation that Taiwan’s economy may show a “U-shaped rebound” next year, slowing from the “V-shaped rebound” recorded in 2010.
Perng made the comments after the central bank kept its benchmark interest rates unchanged for the sixth straight quarter, as was expected.
The bank’s discount rate is to 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.
Meanwhile, the bank decided to maintain its target growth zone of M2 money supply at 2.5 percent to 6.5 percent next year by continuously adopting a moderate easing of monetary policy.
Citing global economic uncertainties ahead, as well as the modest momentum in the global economy and slowing inflationary pressure next year, maintaining the policy rates and the target zone of M2 growth will help keep consumer prices in line with economic growth, the bank said in a statement
With the expected slowing of inflationary pressure next year, Perng hoped the nation’s long-lasting negative real interest rates would turn positive.
Meanwhile, Perng said that open-market operations will remain the main instrument to regulate market liquidity over the near future, saying the central bank may issue more 364-day certificates if M2 growth exceeds the target of 6.5 percent next year.
The central bank said it would launch a clearing platform for foreign currencies next year, following Mega International Commercial Bank (兆豐國際商業銀行) commencing US dollar clearances in Taiwan, and the People’s Bank of China appointing the Taipei branch of Bank of China Ltd (中國銀行) as its clearing bank for yuan trading in Taiwan.
The platform may expand to include other foreign currencies like the euro and Japanese yen in the future, Perng added.
Raymond Yeung (楊宇霆), a Hong Kong-based economist at ANZ Research, said the central bank is now focusing on regulating domestic liquidity to guard against negative impact from global capital flows.
That caused the bank to hesitate about raising policy rates, as worrying about a rate hike could attract further capital inflows, Yeung added.
In considering the possible change in the bank’s objectives, Yeung revised his baseline forecast for rate normalization in Taiwan to begin in the fourth quarter next year.
Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research’s (台灣經濟研究院) macroeconomic forecasting center, also expected the economy to gradually recover next year on the back of a pickup in private investment.
However, the institute said annual growth in the second quarter next year would mark the highest level of the four quarters on the back of base effect, compared with the Directorate-General of Budget, Accounting and Statistics’ forecast that expansion would be strongest in the October-to-December period.
Taiwan Academy of Banking and Finance (台灣金融研訓院) chairman Cheng Cheng-mount (鄭貞茂) said the global economy may not see a significant improvement next year, as major economies are adjusting their economic structures.