The US Federal Reserve is unlikely to inject fresh funds into the market to stimulate the US economy after the current round of quantitative easing ends this month, taking appreciation pressure off the local currency in the second half, analysts said yesterday.
“The chance for a new wave of quantitative easing is low, judging by the improving US economy, even though unemployment there remains high,” Jeff Lin (林建甫), an economics professor at National Taiwan University, told a seminar on US Federal Reserve monetary policy and its impact.
Lin put the chance of a third round of quantitative easing at 10 percent at most because an overly large supply of US dollars may unnecessarily exacerbate US inflationary pressures now that firms have regained confidence.
The New Taiwan dollar may breathe a sigh of relief in the second half after gaining 12 percent against the US dollar over the past year, partly on the back of inflows of hot money, Lin said.
The market has already detected the trend, as evidenced by the recent fall in the local currency, he said.
Lin’s remark came as the US Reserve’s Federal Open Market Committee was to hold a meeting yesterday and today, which is expected to update its monetary policy and offer its view of the country’s economic outlook.
The committee is expected to announce the end of a US$600 billion Treasury bond purchase program, as scheduled by the end of this month, and US Federal -Reserve Chairman Ben Bernanke is scheduled to meet the press after the meeing ends.
The NT dollar inched up 0.18 percent to NT$28.949 against the US dollar at the close of trade in Taipei yesterday, after retreating to NT$29 for two straight sessions, but trading at a 13-year high of NT$28.632 early last month, the central bank’s data showed.
Exporters have voiced grave concerns about a stronger NT dollar, saying the trend weakens their competitiveness and erodes earnings.
Lin expects that the NT dollar will see less volatility in the second half of this year because the greenback may see a rebound following the end of quantitative easing.
“Foreign funds may pull out of emerging markets, including Taiwan, a bit,” Lin said. “The greenback may remain weak in the long term given the sluggish pace of US economic recovery.”
Lin expects the NT dollar to have a support at NT$29 in light of the nation’s healthy economic fundamentals.
Jack Teng (鄧盛銘), vice president at Singaporean UOB Asset Management, said the Fed would refrain from injecting fresh funds in the absence of deflation risks.
“The US central bank will allow the economy to recover on its own, unless the inflation gauge falls to 0.5 percent,” Teng said.
The US consumer price index increased 3.6 percent year-on-year last month.
Global equities markets may enter horizontal corrections in the post-QE2 era because of slowing liquidity, Teng said.
“That accounted for recent falls on Wall Street and the local bourse,” he said. “The rise in the NT dollar may take a break as a result.”
A stable NT dollar would give the central bank a freer hand to raise interest rates by 12.5 basis points in its quarterly board meeting next week to rein in rising real-estate prices, Lin and Teng said.
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