Tue, Dec 26, 2017 - Page 12 News List

Interest rates might go up next year

NEW LEADERSHIP:As the New Taiwan dollar is not expected to appreciate strongly next year, the central bank might lift key rates for the first time after six quarters

By Ted Chen  /  Staff reporter, with CNA

The central bank is likely to start mildly increasing its policy interest rates next year, as the economic growth momentum outlook is positive for the first half, Cathay Financial Holding Co (國泰金控) said yesterday.

The economy is expected to grow steadily, with the central bank expecting GDP to grow 2.35 next year, National Central University economics professor Hsu Chih-chiang (徐之強) said.

The Directorate-General of Budget, Accounting and Statistics (DGBAS) has raised its inflation forecast for this year to 0.96 percent, Hsu said, adding that the indicators provide the conditions for the central bank to start raising interest rates next year.

As the New Taiwan dollar is not expected to appreciate strongly next year, it is likely that under new leadership following the retirement of central bank Governor Perng Fai-nan (彭淮南), the bank would increase interest rates for the first time after six quarters, Hsu added.

A research team for Cathay Financial, led by Hsu, set its GDP growth forecast for next year at 2 percent, lower than the DGBAS’ 2.29 percent, and falling short of the 2.58-to-2.7 percent range for this year forecast by the company.

The research team’s forecast is low because the nation is approaching the end of its expansionary business cycle, which began in November 2015, and while global economic growth remains sound, lagging private investment, in particular in the semiconductor sector, would drag on the economy in the second half of next year, Hsu said, adding that government spending would be vital in making up the shortfall.

The government’s decision to raise public sector wages by 3 percent would only provide limited stimulus to consumption, as the increase is allocated to base pay, which accounts for a small part of total income, Hsu said.

Gains from the wage hike would also be offset by ongoing pension reforms and dampen spending by public-sector employees, Hsu added.


Separately, the Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) said that two out of three major sub-indices of its business sentiment gauge continued to decline last month.

Both the manufacturing and services industries sub-indices fell for the third consecutive month last month, while the construction industry expanded to recover from a sequential decline.

The institute said that the manufacturing industry is approaching the end of the high season for consumer electronics shipments, with the service industry facing the same headwind, as seasonal promotional campaigns by retailers conclude.

However, the sub-index for the property market hit a 55-month high, after a significant rebound in residential and commercial housing transactions in the six largest cities last month, the organization said.

Property developers were far more optimistic, as the sub-index for the construction sector rose 6.46 points from a month earlier to 100.15 last month.

The improving sentiment in the construction sector is due mainly to a 24.3 percent monthly increase in transactions of homes, shops and offices in Taiwan’s six largest cities last month, TIER research fellow Liu Pei-chen (劉佩真) said.

In October, residential and commercial property sales in the six cities — Taipei, New Taipei City, Taoyuan, Taichung, Tainan and Kaohsiung — fell 11.8 percent from a month earlier.

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