The central bank is likely to adjust its benchmark interest rates at a “measured pace” during its quarterly board meeting on Thursday in a bid to maintain the nation’s economic growth while curbing rising asset prices, economists said yesterday.
They said the central bank's decisions on monetary policy would have no direct relationship to China’s interest rate hike on Saturday, the second in 10 weeks, as the two economies face different economic challenges despite closer trade links across the Taiwan Strait.
“China’s interest rate hikes announced on Christmas Day was a calculated move as it wanted to both control inflation and avoid having a significant impact on global financial markets,” Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院) said yesterday.
“For Taiwan, rising asset prices remain a headache for the central bank while the outlook for inflation is benign,” he said by telephone.
The latest official data released by the Ministry of the Interior’s Construction and Planning Agency showed third-quarter housing prices in Taipei City surging to their highest level in eight years at NT$420,000 (US$13,700) per ping (3.3m2). The mortgage-to-household income ratio also hit a record 43.8 percent in the third quarter for the capital’s residents.
The central bank’s latest data also disclosed that outstanding loans for home purchases rose for the twentieth straight month to a record NT$5.09 trillion in October and loans to construction companies also expanded for the ninth straight month to a decade-high of NT$1.23 trillion in the month.
In September, the central bank increased its key interest rates by 0.125 percentage points — its second increase this year — and continued targeted credit tightening measures to cool down the housing market in Taipei.
On this occasion, Liang said the bank would consider another 0.125 percentage point hike in its key rates on Thursday, bringing the discount rate to 1.625 percent, the rate on collateralized loans to 2 percent and the rate on unsecured loans to 3.875 percent.
"The bank would unwind its easy monetary policy in a measured pace," he added.
Tony Phoo (符銘財), an economist at Standard Chartered Bank Taiwan Ltd (渣打銀行), maintained his earlier prediction that the bank would increase interest rates by 0.125 percentage points to further bump up real interest rates, which refers to the nominal interest rate minus inflation.
He expects the central bank to also launch new credit-tightening measures to curb property prices at the upcoming meeting, after several market observers cast doubt on the effectiveness of the cooling measures the government has introduced to date.
On Thursday Chang Chin-oh (張金鶚), land economics professor at National Chengchi University, told local media the central bank’s cooling measures had proved ineffective so far.
Deutsche Bank analyst Julian Wang (王俊朗) said in a research note on Dec. 15 that the effect on housing prices will “only be felt after the mortgage rate goes up to 3 percent or even 4 percent from its current 1.8 percent.”
“This may not happen before 2012,” Wang wrote.
The central bank is likely to proceed as suggested at its Thursday meeting because the currently comfortable inflation rate offers a certain degree of leeway to keep policy rates unchanged, National Central University economics professor Hsu Chih-chiang (徐之強) said by telephone yesterday.
Taiwan’s consumer price index increased for a third straight month by 1.53 percent last month from a year ago, the Directorate-General of Budget, Accounting and Statistics reported on Dec. 6, while China’s inflation rose by 5.1 percent last month, the highest in more than two years, the Chinese statistics bureau reported on Dec. 11.
“Apart from the inflation outlook, the central bank will take into consideration various elements when looking at monetary policy adjustments including asset prices, hot money inflows and economic growth,” Hsu said.
The economist added that the bank would be cautious about any move that could attract more hot money inflows and thereby place further upward pressure on the NT dollar.
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