Fri, Mar 13, 2015 - Page 1 News List

Taiwan not set to join wave of easing: central bank

By Crystal Hsu  /  Staff reporter

Central bank Governor Perng Fai-nan yesterday fields questions during a meeting of the legislature’s Financial Committee in Taipei.

Photo: Wang Min-wei, Taipei Times

Taiwan has no plans to follow the US and other nations in cutting interest rates, which will continue to be determined by local economic indicators, central bank Governor Perng Fai-nan (彭淮南) said yesterday.

Perng made the comments while taking questions at a meeting of the legislature’s Finance Committee in Taipei, after South Korea and Thailand cut their interest rates by 25 basis points earlier this week to spur economic growth.

“Taiwan will set its own monetary policy, depending on how major [economic] data pan out,” Perng said.

The stance suggests an extended period of the “status quo,” given ultra-low inflation and modest economic growth. The central bank is to hold a board meeting on March 26 to review its benchmark interest rate, which has remained unchanged at 1.875 percent for the past 14 quarters.

Local and foreign analysts have suggested that Perng would take his cue from the US Federal Reserve in making any major decisions.

The Fed might raise interest rates in June or September on the back of a recovering job market, Perng told lawmakers, citing the absence of apparent “patience” in the recent Fed policy statement.

If that happens, the pace of US rate hikes would be very slow, Perng said, adding that the global economy has entered an era of moderation — with GDP growth easing to 3 percent, from 5 percent prior to the global financial turmoil in 2008.

Taiwan’s economy is different from the US’ and does not need to copy the Fed’s moves, the governor said, adding that the central bank still must take into consideration global economic developments.

He attributed South Korea’s rate cut to a weak yen following Japan’s money-printing operations, which significantly boosted the competitiveness of Japanese exports.

There is not much overlap between Taiwanese and Japanese exports, making monetary easing moves unnecessary, Perng said.

The quantitative easing by the US, Europe and Japan drove “hot money” of about US$13 billion into Taiwan last year, compared with US$5.6 billion into South Korea, Perng said.

US stock markets rose 180 percent over the past six years, while the local bourse rallied 150 percent on the back of fund inflows, the governor said, elaborating on the impact of hot money.

“Against this backdrop, the central bank has taken steps to maintain ‘dynamic stability’ for the local currency,” Perng said.

The central bank will continue to monitor global fund movements, he said, after foreign funds showed signs of a pullout this week, putting pressure on local share prices.

Foreign institutional players slashed holdings in local shares by a net NT$27.5 billion (US$868.3 million) between Monday and Wednesday, Taiwan Stock Exchange data showed.

Perng also lent his support to wage increase proposals, saying companies should share profits with employees, not just with shareholders.

“Wage increases are favorable to GDP growth,” he said.

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