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.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
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