The signs of gradual improvement in the economy are beginning to show, and GDP growth for next year is set to improve on this year’s as evidenced by a slew of recent forecasts by local and foreign economic institutes. The central bank’s cautious optimism about the economic outlook, expressed during last week’s quarterly meeting, also suggests that the output potential next year will better than the Directorate-General of Budget, Accounting and Statistics’ prediction.
The bank expects the economy to grow moderately in the near-term amid benign inflation and a mild increase in exports. The question is: How strong will the recovery be and how long will it last? Some economists say there is likely to be a long period of slow economic growth in the coming years. In other words, the nation still needs to pursue sustainability and achieve long-term growth.
As was widely expected, the central bank on Thursday kept its policy interest rates unchanged for the 10th straight quarter, deciding to continue its moderate easing of monetary policy while maintaining its target growth zone of M2 money supply at 2.5 percent to 6.5 percent next year. This means that liquidity conditions in the market are set to be similar to this year.
There were no great surprises in the bank’s latest board meeting. At its September meeting, the bank warned that people should not expect interest rates to stay low forever in view of the US Federal Reserve’s potential quantitative easing (QE) move, which caused people to think that the bank might be preparing to begin monetary tightening.
However, the bank last week gave no hint of any such tightening in the near term. Board members did express concern about rising housing prices and credit risk-management problems among banks involved in real-estate lending. They said that some banks have made high-value housing loans without fully complying with the general principles of loan reviews and credit extension.
They also criticized a few lenders, without naming names, for taking inadequate due diligence when approving loans collateralized against industrial land plots. They said the central bank will continue its target examinations to curb real-estate speculation through unethical lending.
This suggests that the central bank would like to see more credit allocated toward production in the real economy rather than flowing into the property market.
The central bank retained its stance that it will step in to curb excessive volatility in the currency market if needed. It said it has offered a certain amount of foreign-currency funds in the call-loan market to meet companies’ year-end funding needs, instead of New Taiwan-dollar funds that businesses generally need for employee bonuses and other expenses.
This remark indicated that it remains wary about the tight foreign-currency funding conditions given the Fed’s planned QE tapering next month and it wants to pre-empt potential negative impacts on the NT dollar’s value from a surge in capital outflows.
Overall, weak growth and muted price pressure have offered room for the central bank to maintain an accommodated stance for the 10th successive quarter. These are more indications that its monetary policy must be supplemented by more effective and concerted government policies to revitalize the economy.