The central bank will only raise its policy interest rates if the inflation rate increases, central bank Governor Perng Fai-nan (彭淮南) said yesterday, after the bank kept its benchmark interest rates unchanged for the eighth straight quarter.
Meanwhile, concerned about the nation’s economic outlook and market liquidity after the US ends quantitative easing, Perng lauded the bank’s moderately easy monetary policies.
The bank’s discount rate will remain at 1.875 percent, with the collateralized loan rate and the unsecured loan rate at 2.25 percent and 4.125 percent respectively, as the market expected, citing a mild pickup in the domestic economy and slowing pressure on consumer prices in the second half of this year.
“If the outlook for consumer prices climbs, the central bank will raise policy rates,” Perng told a press conference.
“It depends on expectations on inflation in the future,” he added.
Perng said Taiwan has maintained its monetary policy in quite quantitative conditions and has less space to raise finances, with the government’s plan to upgrade economic momentum adopted much earlier, an indication it would not be appropriate for the nation to adopt the “three arrows” of “Abenomics.”
As opposed to Japan’s economy, Taiwan’s economy has shown steady growth over the past 20 years, with consumer prices remaining stable over the past 15 years, Perng added.
Despite Bank of Korea Governor Kim Choong-soo saying earlier this week that emerging markets may be forced to tighten their monetary policies to fight negative impact of the end of quantitative easing in the US, Perng was less worried about the issue.
“The problem will not affect Taiwan,” Perng said, citing the bank’s mission to maintain order in the foreign exchange market when disorderly movements occur.
However, ANZ Research expects Taiwan to lift its policy interest rates at the board meeting in December at the earliest, as the nation’s bond yields rise sharply on the back of the increasing yields of the US Treasuries.
“Given the tapering bias of US monetary policy going forward, Taiwan’s interest rates will also be subject to an upward bias,” ANZ Research senior economist on Greater China Raymond Yeung (楊宇霆) said in a note.
However, Standard Chartered Bank said the central bank will keep the policy rates unchanged for the remainder of this year, before considering resuming rate hikes in the first quarter of next year.
“Policymakers will want to keep policy interest rates on hold until there are signs indicating that the current growth recovery is sustainable,” Taipei-based Standard Chartered economist Tony Phoo (符銘財) said in a research note.
The central bank kept its selective credit control measures for the housing market unchanged, reiterating the measures have been effectively slowing the rising pace of property prices in certain areas outside of the Greater Taipei area — which previously recorded higher growth.
The bank added that it is scheduled to lead a delegation to Beijing by the end of this year to discuss a currency swap deal with China, which is likely to be signed as a prerequisite for including Chinese yuan-based assets in the nation’s foreign exchange reserves.