Taiwan’s central bank is likely to adopt more selective monetary tightening measures to curb property speculation and ease inflationary pressure, while limiting the influx of hot money, Standard Chartered Bank said yesterday.
To that end, the central bank might hike the benchmark interest rate by 12.5 basis points during its quarterly meeting on Thursday to cool soaring property prices, without driving borrowing costs up much, Gerard Lyons, chief global economist at the UK-based company, told a media briefing in Taipei.
The central bank is widely expected to raise the interest rate in the face of forecast strong economic growth of 8.24 percent this year.
Lyons said that like other countries in Asia, Taiwan was facing inflation risks, especially in the property sector, and the central bank would take further “macro-prudential” measures to address the concern.
Selective credit controls such as reducing the loan-to-value mortgage ratio was one monetary policy option, he said.
In June, the central bank already asked lenders to limit loans to second-home buyers, among other tightening moves. The series of credit tightening moves helped cool residential real estate transactions, but has yet to trigger a price correction.
Higher interest rates and growth potential will attract inflows of hot money, adding appreciation pressure to the local currency, Lyons said. The central bank in Taiwan and across Asia will likely adopt capital control to stabilize their currencies, Lyons said.
“It is a challenge to central banks to cope with inflation risks while preventing inflows of hot money,” the economist said.
He said the West was unlikely to experience a double-dip recession, but may suffer from a sluggish recovery, discouraging central banks in the US and Europe to raise interest rates in the near term.
Lyons said Asia should spend more on infrastructure expansion to boost domestic demand amid the West’s stagnation.
Nicholas Kwan (關家明), Standard Chartered’s head of research on East Asian economies, said China’s GDP was likely to grow by at least 8.5 percent next year.
Kwan said the yuan was undervalued and could appreciate in a mild and slow fashion.
Tony Phoo (符銘財), the bank’s head economist on Taiwan, said the government should address the problem of falling wages in an effort to stimulate economic growth.
Phoo said labor income as a share of GDP was retreating despite several economic up-cycles.
“That accounts for uneven recovery and will limit Taiwan’s economic development,” Phoo said.
Phoo and other Standard Chartered economists were to meet with Taiwanese policymakers later yesterday to exchange views on economic development.
Standard Chartered will hold its annual meeting of middle-ranking and senior executives for the first time in Taipei this week.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
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