Central bank Governor Perng Fai-nan (彭淮南) yesterday said the bank would slightly tighten its policy amid economic recovery and controllable inflation, a change from his long-standing policy of moderate easing.
Perng was speaking after the central bank’s board members decided to keep key interest rates on hold for the 13th consecutive quarter, the second-longest period in history.
The decision kept the bank’s discount rate at 1.87 percent, with the collateralized loan rate and the unsecured loan rate at 2.25 percent and 4.125 percent respectively.
“We are tightening [the nation’s monetary policy] a bit,” Perng said.
Perng said the bank may hold a meeting at any time to discuss the monetary policy, raising speculation that it would raise policy rates soon.
However, Perng said inflation is moderate this year and could remain mild next year, with the 2.08 percent year-on-year growth of the consumer price index (CPI) last month — the biggest jump in one-and-a-half years — seen as an exception.
Other than inflation, the central bank would consider the nation’s overall economic and financial conditions, as well as movements of the output gap, Perng said.
Despite job market improvements, he expressed concern over relatively weak investment, which has led to high savings.
Perng said the bank has kept an eye on the large net outflows by foreign portfolio investors, which have made the New Taiwan dollar drop by more than 1 percent against the US dollar.
The NT dollar fell NT$0.06 to close at NT$30.31 against its US counterpart yesterday, dropping to its lowest level in five months, according to Taipei Forex Inc.
However, compared with other major global currencies, the movements of the NT dollar’s rate have been relatively stable, he added.
Australia and New Zealand Banking Group Limited (ANZ) senior economist Raymond Yeung (楊宇霆) said the recent weakness of the NT dollar indicated that it is too early to dismiss Taiwan’s inflation risk in the fourth quarter, because currency depreciation may increase import prices and lead to a rise in the CPI.
However, the US’ monetary policy remains the key factor shaping the central bank’s policy direction in the near term, Yeung said.
“[Under the expectation that] the US will start hiking interest rates in the first quarter next year, we maintain our call that Taiwan’s central bank hike rates in March next year, with a possibility of acting earlier, in December,” Yeung said in a research note.
The central bank has chosen to stay on the safe side for rate changes, Taipei-based Standard Chartered Bank economist Tony Phoo (符銘財) said.
That may make the bank resume hiking rates only when economic indicators suggest growth recovery is gaining momentum and inflation risks become too obvious to ignore, Phoo added.
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