The rise in interest rates over 10 consecutive quarters in Taiwan may be approaching a peak because of subdued inflation and slowing export growth, central bank Governor Perng Fai-nan (
"We are closer and closer" to a so-called neutral rate, Perng said on Monday in the first media interview in his nine-year term in office.
The bank uses different models to gauge an appropriate level that contains inflation and supports growth, he said.
While the central bank is poised to raise the discount rate on 10-day loans to banks from 2.75 percent this month, it may leave borrowing costs unchanged for the first time in more than two years in June, some economists say.
Taiwan's benchmark rate is the second-lowest in Asia after Japan, encouraging investors to sell the New Taiwan dollar and buy higher-yielding assets in Indonesia, India and Australia.
The second-longest serving governor of a major Asian central bank said he doesn't see "another financial crisis" after a two-week global equities sell-off and a US housing slump caused investors to dump riskier securities.
Perng declined to give a forecast for his board's meeting this month.
The government forecasts the economy will slow to a 4.3 percent expansion this year, from 4.6 percent last year, as exports cool. Core inflation, which excludes fresh food and energy prices, has remained below 1 percent for three years and inflationary pressure is "relatively subdued," Perng said.
"A recovery in consumer spending will help lift the economy," Perng said. "However, Taiwan is a small, open economy; without a robust export performance, domestic demand alone may not be sufficient to ensure sustained economic growth."
Perng, 68, added that monetary policy is still "accommodative" and higher rates "do not risk slowing the economy too much."
After the last increase on Dec. 28, Perng said rates are "approaching" a neutral level.
"We will have to reconsider our monetary policy if we reach that level," he said.
Perng has been governor of the central bank since February 1998, while Joseph Yam (
Taiwan's economy grew about twice as fast last year as Japan, whose benchmark rate of 0.5 percent has made it a favorite to fund so-called carry trades. Yet Taiwan's growth rate has still lagged behind the rates of Indonesia and the Philippines, whose borrowing costs are more than twice as high.
Higher bond yields overseas are encouraging Taiwanese investors to invest abroad. Balance of payments data indicates capital outflows by residents of Taiwan of US$53 billion last year, Goldman Sachs Group Inc wrote in a report on Monday.
Perng said inflows of investment into Taiwanese stocks are "offsetting" such outflows. Taiwanese investors are "free and can make their own decisions" on whether to invest overseas, he said.
The NT dollar closed near a one-month low at NT$32.978 per US dollar yesterday. It fell 1.4 percent in the past three months.
"The exchange rate is determined by market forces," said Perng, whose second five-year term will expire in next February. He also said he didn't think the NT dollar is an alternative "funding currency" for carry trades.
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