The central bank’s quarterly board meeting last week did not yield any surprises. The benchmark rediscount rate was kept at 1.375 percent for the sixth consecutive quarter, and the bank said it would continue to appropriately apply a loose monetary policy. The bank raised its GDP growth forecast for next year from last month’s estimate of 2.2 percent to 2.36 percent, compared with the global average of 3.2 percent. It also adjusted its inflation forecast from 0.96 percent to 1.12 percent, although it is well below the “most appropriate” 2 percent rate cited by central bank Governor Perng Fai-nan (彭淮南).
In his final monetary policy meeting as the bank’s head, Perng eloquently shared his views about the bank’s monetary policy stance, his understanding of the local and global economic situations, and his usual responses to outside criticism.
Perng, who is to retire in February next year after leading the central bank for 20 years, maintained that the New Taiwan dollar’s exchange rate is determined by market supply-demand dynamics, saying that blaming foreign exchange rates for Taiwan’s deteriorating terms of trade — or low wages, low birth rate and high fuel prices — is unfair. He said Taiwan’s interest rate is not low compared with other economies, but is appropriate for the level of the nation’s economic growth.
Perng said all major countries, including Taiwan, have faced low wage growth and that the minimum wage should be increased to within a reasonable range. He rejected the idea that wages should be ruled by the free labor market and that the government should not intervene. Instead, he said a free labor market is not a panacea, because of the disparity of bargaining powers between workers and employers, adding that market failures occur occasionally.
Many have criticized Perng’s monetary policy for lacking vision and for not being aggressive enough. Some hold differing views regarding what value the NT dollar should have or what other monetary policy tools the bank could use to control liquidity and inflation.
However, Perng’s steady hand over the past two decades has helped Taiwan sail through dangerous waters, from the Asian financial crisis in 1997 to the dotcom bubble in 2001, the global financial crisis in 2008 and the European debt crisis in 2012.
While there will always be a clamor for greater economic growth, higher wages and more affordable housing, it would be difficult to argue with the financial stability that Perng’s professional skills and the bank’s monetary policy have brought to the market. Perng can be satisfied with his legacy.
The coming months will focus on Perng’s succession plan. More important than finding the best candidate will be addressing whether a new governor can flexibly and opportunely lead the bank in adjusting its monetary policy to cope with changes in the economy, especially as the nation faces the so-called fourth industrial revolution driven by “smart” manufacturing, data exchange and financial technology.
It will be interesting to see whether and to what extent the new governor supports the bank’s market-oriented reforms, such as minimizing foreign-exchange interventions, improving policy transparency, strengthening communication with market participants and increasing Taiwan’s visibility on the international stage.
While the central bank has needed a visionary chief to draw up a 10-year blueprint for the nation’s financial markets, the real challenge for the next governor is to balance risk control with industrial development, while acting with discipline, transparency, independence and accountability.
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