While the US Federal Reserve left its federal fund rates unchanged at the moment, Citigroup said the unexpected announcement by Taiwan’s central bank on Tuesday that it would lower its reserve requirement ratios for local lenders would likely create an opportunity for a “symbolic cut in the discount rate” next week.
The latest move would also cause short-term interest rates for the central bank’s negotiable certificates of deposit to go down, Citigroup economists Cheng Cheng-mount (鄭貞茂) and Tina Liao said in a client note released yesterday.
The central bank’s move on Tuesday night came as a surprise because the cut was not only a major move but also came a week before the monetary policymaker’s quarterly board meeting scheduled for Sept. 25.
By lowering the reserve ratios, the central bank would help inject NT$200 billion (US$6.2 billion) of liquidity into the nation’s monetary system amid a sharp decline in local equity prices and global financial turmoil.
Beginning today, the bank will lower the ratios for time deposits and time savings deposits by 0.75 percentage points to 4 percent and 5 percent respectively. The bank will also cut ratios for check deposits, demand deposits and demand savings deposits by 1.25 percentage points to 10.75 percent, 9.775 percent and 5.5 percent respectively.
“We think a rate cut next week would be a signal of the CBC’s determination to stabilize financial markets to prevent further economic downside risks,” Cheng and Liao wrote in the note.
“But this does not necessarily mean that the CBC has shifted its monetary policy to a neutral stance. Going forward, as we anticipate a shallow but protracted economic downturn, we expect the CBC to stay put in the coming months,” the note said.
The central bank has hiked its discount rate 16 consecutive quarters since October 2004 to help rein in inflationary pressure.
Ernest Lee, a bond trader at Mega Securities Co (兆豐證券), told Bloomberg Newswire yesterday that the central bank could elect not to lower interest rates this month, after central bank Governor Perng Fai-nan (彭淮南) said on Tuesday that the nation’s “real interest rates aren’t very high.”
“Judging from Governor Perng’s comments, the chance of the central bank lowering interest rates is slim,” Bloomberg quoted Lee as saying.
Meanwhile, market observers expected the cut in requirement ratios to indirectly channel fresh funds into the stock market, which has seen its TAIEX declined more than 30 percent since the beginning of this year to reach the lowest level in nearly three years.
But Tine Olsen, a Sydney-based economist at Moody’s Economy.com, maintained a skeptical view and said it was too early to judge the effectiveness of this increased liquidity, she said in a statement.
GEOPOLITICAL ISSUES? The economics ministry said that political factors should not affect supply chains linking global satellite firms and Taiwanese manufacturers Elon Musk’s Space Exploration Technologies Corp (SpaceX) asked Taiwanese suppliers to transfer manufacturing out of Taiwan, leading to some relocating portions of their supply chain, according to sources employed by and close to the equipment makers and corporate documents. A source at a company that is one of the numerous subcontractors that provide components for SpaceX’s Starlink satellite Internet products said that SpaceX asked their manufacturers to produce outside of Taiwan because of geopolitical risks, pushing at least one to move production to Vietnam. A second source who collaborates with Taiwanese satellite component makers in the nation said that suppliers were directly
Top Taiwanese officials yesterday moved to ease concern about the potential fallout of Donald Trump’s return to the White House, making a case that the technology restrictions promised by the former US president against China would outweigh the risks to the island. The prospect of Trump’s victory in this week’s election is a worry for Taipei given the Republican nominee in the past cast doubt over the US commitment to defend it from Beijing. But other policies championed by Trump toward China hold some appeal for Taiwan. National Development Council Minister Paul Liu (劉鏡清) described the proposed technology curbs as potentially having
EXPORT CONTROLS: US lawmakers have grown more concerned that the US Department of Commerce might not be aggressively enforcing its chip restrictions The US on Friday said it imposed a US$500,000 penalty on New York-based GlobalFoundries Inc, the world’s third-largest contract chipmaker, for shipping chips without authorization to an affiliate of blacklisted Chinese chipmaker Semiconductor Manufacturing International Corp (SMIC, 中芯). The US Department of Commerce in a statement said GlobalFoundries sent 74 shipments worth US$17.1 million to SJ Semiconductor Corp (盛合晶微半導體), an affiliate of SMIC, without seeking a license. Both SMIC and SJ Semiconductor were added to the department’s trade restriction Entity List in 2020 over SMIC’s alleged ties to the Chinese military-industrial complex. SMIC has denied wrongdoing. Exports to firms on the list
TALENT FACTOR: The nation’s chip sector would be difficult to replace, but to maintain that advantage, Taiwan must retain skilled workers, an academic said A group of experts on Sunday called on Taiwan to strive to maintain its world-leading position in the semiconductor industry, with a US-China chip dispute expected to continue regardless of who becomes the next US president. Tamkang University Graduate Institute of International Affairs and Strategic Studies director Li Da-jung (李大中) said at a Taipei seminar on global semiconductor security that the relationship between the two superpowers would remain confrontational. There appears to be “no turning back” in US-China relations, as US presidential candidates US Vice President Kamala Harris and former US president Donald Trump are both expected to continue Washington’s hawkish stance