The central bank is cautious that the quantitative easing measures adopted by major global economies could affect the steadiness of financial and asset markets in Asian economies including Taiwan, according to a report that central bank Governor Perng Fai-nan (彭淮南) is set to present to the legislature’s Finance Committee on Monday.
In the report, Perng says that monetary easing in the developed world could cause overheating and asset bubbles in emerging economies as a large amount of speculative liquidity, also known as “hot money,” would flow into these countries, citing talks by IMF managing director Christine Lagarde in October last year.
“Instead of economic fundamentals, the [track of] international hot money has been the major factor dominating the securities and currency markets in Asian countries,” Perng says in the report.
Despite economic fundamentals in various Asian markets showing some differences, their securities markets and currencies generally showed an upward trend compared with the second half of last year, mainly due to the inflows of hot money caused by quantitative easing measures in major economies, he says.
The central bank will carefully watch the impact of the recent sharp depreciation in the Japanese yen and the effect of Japan’s expansion of quantitative easing on the currency rate of the New Taiwan dollar, the report says.
However, the central bank is not concerned that inflows of speculative hot money would raise consumer prices, citing the steady trend in global grain prices and the forecast falling pace in global energy prices ahead, Perng says.
Meanwhile, Perng says he expects Taiwan’s economy to gradually rebound following the mild global economic recovery, with the rise in the exports, private consumption and private investment sectors.
The governor’s remarks come as the central bank is scheduled to hold a policymaking meeting on March 28.
In the previous meeting on Dec. 19, the central bank maintained its key discount rate at 1.875 percent, the sixth consecutive quarter in which it remained unchanged.
The report also showed that 12.92 billion Chinese yuan (US$2.08 billion) was deposited by Taiwanese as of Monday after local banks started offering yuan-based business on Feb. 6.
The number of yuan transfers totaled 4,181 cases, with the total transferred amount standing at 1.87 billion yuan, the report’s data show.
A total of 53 banks in Taiwan have launched yuan-denominated services, such as deposits, loans and remittances, after Taipei and Beijing set up a cross-strait currency-clearing mechanism.
The central bank also said it has started negotiations with the People’s Bank of China to set up a currency-swap mechanism, which is a prerequisite for Taiwan to add yuan-based assets to the central bank’s foreign exchange reserves.