More Taiwanese favor the central bank keeping key interest rates unchanged, a survey released on Monday last week by Cathay Financial Holding Co showed, as the US Federal Reserve has turned more dovish in recent months and other central banks are pushing back policy-tightening plans amid heightened economic uncertainty.
According to the survey, 39.7 percent of respondents believe there is no need to adjust interest rates, while 37.4 percent believe the bank should raise rates and 22.9 percent believe it should lower them.
A similar poll by Cathay Financial in April last year — when the Fed was hiking rates and global equity markets experienced a boom — found that 25.9 percent of respondents believed there was no need to raise rates, about 45 percent believed rates should go up and 28.2 percent had no comment.
Over the past year, public opinion has shifted from believing rates should go up to believing they should remain unchanged.
The central bank has not adjusted its policy rates for 11 consecutive quarters — not since September 2016. Last month, it kept the rediscount rate unchanged at 1.375 percent over concerns about an economic slowdown at home and abroad, as US-China trade tensions linger and negative output gaps persist.
Over the past few months, national policymakers have reiterated that they aim to maintain an extended accommodative monetary policy as softer global demand drags down external trade.
Last week’s poll suggests that while most people believe that monetary tightening is unlikely in the near term, at least 39.7 percent of them are worried that the central bank might lower interest rates to boost the economy. This would put savers at a disadvantage when the interest rate for one-year fixed deposits is already at a multiyear low of 1.035 percent at the Bank of Taiwan.
Conversely, that 37.4 percent of respondents remain staunch supporters of monetary tightening also signals disagreement with the bank’s dovish position. Increased rates would benefit household savings and raise returns for pensioners when most people hold a dim outlook for pension incomes.
This policy dilemma highlights a policy challenge facing many countries with populations aging at an alarming rate. In Taiwan, raising the retirement age to ease pension burdens and boost retirement savings is one option, but encouraging financial institutions to develop additional mutual funds and retirement products — with somewhat higher returns than savings and fixed-term deposits, but lower risks than conventional investment products — is another option.
The Financial Supervisory Commission this month selected three securities investment trust companies to participate in a government-backed, experimental retirement investment program.
During the two-year program, the firms would research people’s views on retirement, determine how much people should set aside from paychecks for a retirement investment and develop products to meet the needs of various consumers, the commission said.
Of course, conducting an experiment and actually putting products on the market are not the same, but the commission is moving in the right direction. People increasingly need help planning for retirement and managing their money, while the central bank apparently just cannot offer immediate relief.
The next step would be for the three firms and their peers to continue developing innovative, fixed-income products and help the public take appropriate action before retirement.
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