The central bank may maintains it policy of keeping interest rates on hold at its quarterly board meeting on Thursday as significant downside risks remain even though the outlook for economic growth has improved, HSBC PLC said in a report.
“We expect the central bank to stay put until the year end, rather than rush into a sharp and unnecessary policy shift,” HSBC Greater China economist Donna Kwok (郭浩庄) said in the report.
The central bank has left the discount rate unchanged at 1.875 percent since September 2011, although it has tightened credit controls on mortgage and land financing to attempt to rein in property price hikes.
Other foreign banks, including Standard Chartered Bank, Barclays PLC and Australia and New Zealand Banking Group Ltd (ANZ), also forecast the central bank would leave its key interest rates unchanged at the meeting, but would keep a close watch on the property market.
Last week, central bank Governor Perng Fai-nan (彭淮南) told lawmakers the bank had no plans to withdraw its credit-tightening measures anytime soon. He did not say whether the bank would take further steps to curb rising house prices, despite prices in major metropolitan areas remaining high.
Kwok said the central bank was concerned about property prices, but was considering use of administrative measures, rather than interest rate increases, to send a message to the real-estate market.
While the central bank is likely to keep liquidity ample in an effort to provide a boost to the economy, as inflationary pressures are unlikely to emerge in the near future, HSBC said it does not expect the nation’s economic growth to recover significantly for at least another year, with external growth risks still a major factor.
“It is no time for Taiwan to rest easy just yet, as the impact of sequestration has yet to filter through, and a US government shutdown is not totally inconceivable,” Kwok said.
European economies, except Germany, have yet to show signs of serious revival and the proposed Cyprus bailout threatens to put the sovereign debt crisis back on center stage, she said, adding that external uncertainties warrant caution for any policy moves that may lead to upside price pressures.
The latest government statistics showed the consumer price index rose 2.97 percent year-on-year last month, after an increase of 1.13 percent in January, on the back of Lunar New Year demand.
The government has estimated the consumer price index will increase 1.37 percent this year, down from last year’s 1.93 percent.