Central bank keeps rates, but cautions on change

RATING THE RISK::The bank said it had a duty to urge people with home mortgages to be vigilant about future rate hikes, given the uncertainty in the global markets

By Amy Su  /  Staff reporter

Fri, Sep 27, 2013 - Page 13

Despite keeping policy rates unchanged for the ninth straight quarter, the central bank yesterday warned people with home mortgages to keep an eye out for interest rate changes, spurring speculation that it could raise benchmark rates in the near future.

The bank also warned that the US Federal Reserve’s decision to sustain the current scale of its monthly asset purchases could cause volatility among global financial markets.

The central bank met local market expectations by keeping its discount rate unchanged at 1.875 percent, with the collateralized and unsecured loan rates at 2.25 percent and 4.125 percent respectively, citing the current mild pickup in the domestic economy and slowing pressure on consumer prices.

However, it added the uncharacteristic reminder to home loan borrowers to be wary of interest rate hikes in the future because the average mortgage payment accounts for more than 30 percent of household income.

“The interest rate does change at times,” bank Governor Perng Fai-nan (彭淮南) said yesterday. “The central bank has the responsibility to remind the public of this and the possible risks it carries.”

Perng said the bank’s current monetary policy remained one of moderate easing, with outlooks for consumer prices, and the global economic and financial markets set as major factors in determining the bank’s future strategy.

However, Perng’s remarks raised market expectations that the central bank may adjust its policy rates upward soon.

Hong Kong-based ANZ Research senior economist Raymond Yeung (楊宇霆) forecast that the nation would see its first rate hike after the central bank holds its board meeting in December.

“But the interest rate outlook depends largely on the US’ tapering schedule,” Yeung wrote in a research note.

Yeung said that overall monetary policy in Taiwan is biased toward tightening, given Perng’s comments that the central bank regularly issues two-year negotiable certificates of deposit once a month.

Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said the central bank may consider resuming its rate-hike cycle in the first quarter of next year, especially if more signs indicate that the economy’s current growth rebound is sustainable.

“In our view, the planned electricity price hikes set for October will drive up inflation in the fourth quarter and into next year,” Phoo said in a statement.

In addition, recent typhoons are expected to cause a temporary surge in food prices for at least this and next month, he added.

Global financial markets may face continuous volatility because of the Fed’s decision to sustain its quantitative easing measures, but these measures will be stopped eventually, Perng said.

The Fed’s move has resulted in a higher frequency of inflows and outflows of foreign portfolio investors, adding more pressure on the New Taiwan dollar to appreciate, he added.

As for the potential currency swap deal with China, Perng said the bank “is ready” to discuss it, but it does not set the schedule unilaterally.

Perng said he hopes the negotiations will enable the bank to raise the maximum daily quota for yuan deposits in Taiwan from its current level of 20,000 yuan (US$3,270).