Mon, Dec 17, 2018 - Page 6 News List

EDITORIAL: Changing monetary policy not enough

Central banks around the world use tools such as interest rates to adjust the money supply in an attempt to balance inflation, employment and output growth, although some banks are more concerned with inflation, while others prioritize economic growth. Over the past two decades, most central banks have been tasked with maintaining low inflation and safeguarding financial markets, but since the global financial crisis of 2008-2009, monetary authorities have been called on to help boost aggregate demand and revitalize national economies.

Since the key interest rate in the US reached a record low in late 2015, the US Federal Reserve has been gradually increasing it, including three times so far this year. The Fed is likely to increase it by another 0.25 percentage points this week, but is expected to slow the pace of rate hikes next year.

The European Central Bank has kept its benchmark interest rate unchanged over the past five years and is likely to maintain it next year in light of a weak economic outlook. Meanwhile, the Bank of Japan has stuck with an accommodative monetary policy to keep credit flowing and fight deflation.

The Bank of Thailand has left its main policy rate untouched since April 2015 and the Reserve Bank of Australia has stayed put since August 2016.

Bank Indonesia has raised its key interest rate six times this year to stem the flow of funds out of the country, the Bangko Sentral ng Pilipinas has increased rates five times since the beginning of the year to curb inflationary pressure and the People’s Bank of China has lowered its reserve requirement ratio four times this year to encourage lending.

The Monetary Authority of Singapore has already tightened monetary policy twice this year, whereas the Bank of Korea last month raised its benchmark interest rate for the first time in a year over concern about rising household debt.

Taiwan’s central bank is to hold a quarterly board meeting on Thursday. The bank has refrained from hiking its policy rates since September 2016 in the absence of serious pressure from consumer price inflation or capital outflows.

Although the widening interest-rate differential between Taiwan and the US is adding to the risk of capital outflows — which could cause currency weakness and harm local equities — factors such as the momentum of economic growth have passed their peaks, so global macroeconomic conditions and mixed actions of other central banks bring no immediate pressure on the Taiwanese central bank to adjust its monetary policy.

Amid the rise in US-China trade tensions, the Fed’s tightening of its monetary policy, and a slowdown in China and other emerging economies, Taiwan’s official manufacturing purchasing managers’ index tumbled below the neutral threshold of 50, falling to 48 last month, while exports unexpectedly declined, ending a 24-month growth streak.

The government forecast that GDP growth would fall from 2.66 percent this year to 2.41 percent next year and there are renewed worries over corporate earnings results and companies’ business outlooks, but the psychological stress that would require an immediate policy response from the central bank has lessened.

As long as global economic difficulties remain unresolved and there are no significant changes to the structural bottlenecks in the nation’s economy, changing the central bank’s monetary policy would have limited effect on the economy.

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