The government has no plans to roll out additional monetary easing to boost the nation’s economy, as recent measures are taking effect to support domestic fund needs and exporters, the central bank said yesterday.
In a statement issued after the local stock and currency markets closed, the central bank said there is no need for Taiwan to introduce the quantitative easing (QE) measures adopted by Japan because of clear differences between the two countries.
“Some critics have recently suggested that Taiwan should follow Japan’s QE approach,” the central bank said in the statement. “However, Taiwan has never experienced a Japan-like deflation, nor has it faced a credit crunch situation.”
Compared with Japan, Taiwan also has higher nominal interest rates, while real interest rates have stayed at relatively the same levels, the bank said.
Unlike Japan, Taiwan experiences the least inflationary pressure in Asia, with the latest government data showing that the national consumer price index (CPI) increased by 0.79 percent for the whole of last year, the lowest annual expansion since 2009. With this benign inflation environment, the central bank has kept its policy interest rates unchanged at 1.875 percent for 10 straight quarters since September 2011, as policymakers do not want higher borrowing costs to harm the export-reliant economy.
In the statement, the central bank said it has maintained a healthy growth in the nation’s M2 money supply, which is the broadest measure of money flowing through the banking system, to support the economy’s domestic sectors.
During its board member meeting last month, the bank decided to maintain its target growth zone of M2 money supply at 2.5 percent to 6.5 percent for this year, an indication that it believes the liquidity conditions in the domestic financial market for this year will be similar to last year’s. The central bank yesterday praised the QE programs adopted by Japan, the US and the UK over the past few years for helping prevent a situation similar to that of the Great Depression of the 1930s.
However, the bank warned the “spillover effect” of such QE measures by advanced economies has created simultaneous problems such as currency appreciation, asset bubble and potential inflation in emerging economies, the bank added in the statement.
“The QE measures implemented by large economies do have the effect to devalue their currencies, but similar programs will not have the same impact on the New Taiwan dollar, as Taiwan’s economy is small and the national currency has not been widely used internationally,” the bank said.
Still, the issue of a weak yen, thanks to the Bank of Japan’s continued efforts to ease monetary conditions in that country, is a big concern for Asian economies and Taiwanese exports will face worsening competitiveness if the yen’s depreciation is further prolonged.
In November last year, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) chairman Morris Chang (張忠謀) said the NT dollar should depreciate more to strengthen local exporters’ profitability. The central bank yesterday said that based on statistics compiled by the Bank for International Settlements, the real effective exchange rate (REER) of the NT dollar was still lower than the South Korea won and Chinese yuan.
The REER index is used to determine a country’s currency value relative to the other major currencies. Using the year of 2010 as a base year with a score of 100, for instance, the NT dollar’s REER index dropped for the third month to 101.82 last month, while South Korea’s won had risen for the sixth straight month to 108.64, which the central bank said is an indication of the relatively higher competitiveness of the NT dollar. The local currency yesterday closed down NT$0.02 at NT$30.256 against the US dollar at the end of Taipei trading.
For the whole of last year, the NT dollar depreciated by 2.72 percent against the greenback, compared with the yen’s 21.5 percent decline against the dollar and the won’s 1.44 percent increase, the central bank’s data showed.