Central bank Governor Perng Fai-nan (彭淮南) yesterday said that with interest rates already low, a further lowering of rates would provide no obvious boost to the economy.
However, cutting interest rates could help stop the inflow of hot money, Perng said at a meeting of the Finance Committee at the legislature in Taipei when asked by lawmakers for his views on lowering interest rates.
Perng said the purpose of reducing interest rates is to stimulate investment.
Such measures have a bigger effect when interest rates are high, but have only a limited effect when interest rates are already low, he said.
The central bank last cut its key interest rates by 0.125 percentage points in December last year, with the discount rate falling to 1.625 percent, the rate of accommodations with collateral dropping to 2 percent and the rate of accommodations without collateral declining to 3.875 percent.
Perng’s remarks came on the same day as New Zealand’s central bank announced a surprise cut in interest rates to a record low of 2.5 percent, while South Korea’s central bank decided to keep interest rates at 1.5 percent before the European Central Bank (ECB) cut its rates later in the day.
The eurozone’s central bank cut its main refinancing rate to zero from 0.05 percent, adjusted its asset-buying scheme to 80 billion euros (US$86.9 billion) a month from 60 billion euros and cut its deposit rate to minus-0.4 percent from minus-0.3 percent, charging banks more to keep their money with the ECB.
Against this backdrop, emerging Asian shares have attracted more than US$4 billion of inflows so far this month ahead of the ECB policy meeting, data compiled by Bloomberg showed.
As Asian investors turned their attention to the ECB meeting, Japan’s Nikkei index ended 1.3 percent higher, while Seoul was 0.8 percent higher. There were also healthy gains in Taipei, Mumbai, Manila and Wellington, but Sydney and Hong Kong each dipped 0.1 percent on late selling, while Singapore was 0.2 percent off in the afternoon.
In Asian currency markets, the won led gains in emerging currencies, appreciating 0.7 percent against the US dollar at 4pm yesterday, while the ringgit climbed 0.19 percent and Hong Kong dollar advanced 0.2 percent.
The New Taiwan dollar rose 0.44 percent to NT$33.08 versus the greenback after two consecutive days of decline. The Singapore dollar, baht, Indonesian rupiah and Philippine peso also rose, but the yen and yuan fell against the US currency.
With interest rates low, monetary policy alone is not enough to increase demand and growth, Perng told lawmakers, adding that fiscal policy and structural reform should be adopted to increase the stimulus effect.
Asked whether the central bank would further reduce interest rates at its next quarterly policymaking meeting later this month, Perng said he needs to respect the opinions of the other board members.
The central bank would continue to monitor the economic and financial situations at home and abroad in order to adopt a proper monetary policy, he said.
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