Fri, Mar 07, 2014 - Page 13 News List

Perng warns of inflation risks

CONCERN:The central bank governor said home owners should be wary of rate increases because mortgage payments account for more than 30 percent of income

By Amy Su  /  Staff reporter

Central bank Governor Perng Fai-nan (彭淮南) said yesterday that headline inflation this year may increase above the 1.07 percent forecast by the Directorate-General of Budget, Accounting and Statistics (DGBAS) last month, citing rising pork prices.

“According to a central bank evaluation, the growth of the CPI [consumer price index] this year may show a 0.2 percentage point increase over the DGBAS forecast,” Perng said during a question-and-answer session at a meeting of the legislature’s Finance Committee in Taipei.

More than 200,000 piglets have died from a viral disease outbreak that has led to a sharp rise in pork prices, according to local media reports. Perng said the issue might continue to affect consumer prices over the next few months.

Perng also told lawmakers that home owners should be wary of interest rate increases because average mortgage payments account for more than 30 percent of household income.

As each borrower has an average of NT$6.06 million (US$199,850) in home loans, every 0.25 percentage point increase in interest rates translates into a NT$625 increase in repayments per month, he said.

“House prices in certain regions are absolutely too high, so we have to keep reminding the public about the possible risks [when the interest rates move higher],” Perng said.

Perng’s remarks raised speculation that the central bank would raise its policy rates at the next board meeting on March 27, but economists saw little possibility of the bank raising rates in the first half of the year.

Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research’s macroeconomic forecasting center, said the central bank would keep rates on hold until both the global and domestic economies showed signs of substantial improvement.

Consumer prices would also have to show a significant increase for the bank to seriously consider a rate increase, he added.

“The increase in Taiwan’s consumer prices is still relatively slow compared with other major economies,” Sun said by telephone.

Barclays Capital senior regional economist Leong Wai Ho (梁偉豪) said the central bank would continue to support the economy’s recovery via liquidity injections and begin to normalize its monetary policy in the second half of the year at the earliest, given the current benign inflation environment.

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