Taiwan Academy of Banking and Finance (台灣金融研訓院) chairman Shea Jia-dong (許嘉棟) yesterday said interest rates were still too low because the central bank’s interest-rate policy has failed to absorb excess liquidity.
“In my opinion, the central bank has maintained its pace of quantitative easing since 2000,” Shea said at a banking forum in Taipei.
Shea was formerly a deputy governor at the central bank, who served from 1996 to 2000.
Although the central bank says it has effectively absorbed excess liquidity by selling certificates of deposit to commercial banks, market rates — including deposit and lending rates — remain undervalued, an indication that excess liquidity is still high, Shea said.
Pointing to historical data on interest rates, Shea said the central bank was more inclined to lead interest rates lower rather than higher.
“The central bank’s efforts to increase the amount of money in circulation were far bigger than its efforts to reduce the amount over the past 10 years,” he said.
Shea said the central bank should adopt more open-market operations, as well as slow down the increase in foreign exchange reserves to rein in excess liquidity.
By doing so, it would make the bank’s monetary policy more effective, he said.
As for the bank’s currency policy, Shea said he saw no reason for the central bank to keep the New Taiwan dollar depreciating against the US dollar, given the nation’s substantial trade surplus.
“A country’s currency policy is not aimed at keeping all local companies profitable,” he said, in response to the NT dollar’s recent fall in value against the greenback.
Shea said the central bank is focused on keeping a stable foreign exchange rate for the NT dollar in nominal terms, but this policy has also led to high excess liquidity, soaring property prices, lower interest spreads and deteriorating trade terms.
The NT dollar yesterday dropped NT$0.016 to close at NT$30.388 against the greenback, after falling to a low of NT$30.67 in mid-day trading, central bank data showed.
It was the NT dollar’s lowest level since Dec. 28, when it closed at NT$30.396, data showed.
Turnover totaled US$1.68 billion at Taipei Forex Inc and US$429 million at the smaller Cosmos Foreign Exchange.
“The central bank helped slow the NT dollar’s depreciation in the afternoon session, following the rebound of South Korea’s won at noon,” a Taipei-based currency trader at Union Bank of Taiwan (聯邦銀行) said by telephone yesterday.
The currency trader said he expected the NT dollar to trade at about the NT$30.5 level versus the greenback in the short term, if the the won does not fall under 1,200 against the US dollar.
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