Taiwan has no need for quantitative easing and current monetary policy is loose enough to support economic growth, central bank Governor Perng Fai-nan (彭淮南) said yesterday, hinting that interest rates might remain unchanged when the bank’s board reviews its rate policy today.
“Taiwan will not make a splash, given its small size, if it embarks on quantitative easing,” Perng told the legislature’s Finance Committee, adding that he has never seen small countries print money to stimulate growth.
However, the nation’s economy is susceptible to quantitative easing adopted by major economies, as seen in the recent drastic financial market fluctuations and hot money flows, he said.
Photo: Liu Hsin-de, Taipei Times
Perng did not show any signs that he might be willing to reduce the rediscount rate from 1.875 percent to help the economy, saying only that he would respect the opinions of all board members.
The central bank has held interest rates unchanged for 16 consecutive quarters. Several pundits have called on the bank to be more accommodative, as its peers in China, South Korea and Japan have been, to keep Taiwanese exports competitive.
“Not all problems can be solved by monetary policies, though they can exert some influence over the short term,” Perng said.
A lack of external demand, not concerns about borrowing costs, is the main reason for sluggish private investment interest, he said.
The nation’s overconcentration on a few electronic sectors and heavy economic dependence on China make its growth vulnerable to global technology cycles and the ongoing slowdown in China, Perng said.
Taiwanese firms must diversify their products and export destinations to survive the headwinds from abroad, he said.
The government can lend a helping hand by adopting expansive fiscal policy, he said, citing the need for renovation work at the 36-year-old Taiwan Taoyuan International Airport.
His comments lent support to forecasts by some pundits that the central bank would stand pat the policy rates, but allow the New Taiwan dollar to weaken to bolster the economy.
The NT dollar yesterday lost 0.84 percent, or NT$0.279, to NT$33.25 against the US currency in Taipei trading, sinking to a six-and-a-half-year low. It was the second time this year that the NT dollar’s closing rate fell below the NT$33 mark, widely referred to as Perng’s defense line.
Combined turnover on the Taipei Foreign Exchange and Cosmos Foreign Exchange markets jumped to US$1.87 billion, from US$1.04 billion a day earlier.
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