Thu, Sep 25, 2014 page13

• Perng’s Fed remarks raise rate hike buzz

  RATE EXPECTATIONS: After predicting that his US counterpart could boost interest rates as early as next year, the central bank head said US policy would impact Taiwan’s

  • By Amy Su / Staff reporter
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  Central bank Governor Perng Fai-nan (彭淮南) yesterday said that he expects the US Federal Reserve to start raising interest rates from the middle of next year at the earliest, boosting speculation that Taiwan’s monetary policy could do the same in the coming year.

  Perng made the remarks while delivering a report to the legislature’s Finance Committee ahead of the bank’s quarterly board meeting today.

  “The US may start adjusting its policy rates upwards in June or July next year, with its policy interest rate set to stand at 1.375 percent by the end of next year,” Perng said during a legislative question-and-answer session.

  Major global economies have set their monetary policy on opposite courses, Perng said, adding that while the US and the UK are ready to tighten their monetary policies in the near future, Japan, China and the eurozone are still in a loose environment.

  Relative to other countries’ policies, the Fed’s tone is to be a more important factor in the shaping of Taiwan’s monetary policy, since “the trend of yields for Taiwan’s 10-year government bonds falls in line with the US,” Perng said, raising expectations that Taiwan may follow in the US’ footsteps and raise rates next year.

  Perng declined to specify the central bank’s plans, saying that the board members will discuss the issue at today’s meeting, taking into consideration the overall state of the economy and inflation.

  The Directorate-General of Budget, Accounting and Statistics estimated that the nation’s headline inflation will stay in check this year — predicting growth of between 1.5 and 1.6 percent — boosting the possibility that monetary policymaking body will retain benchmark interest rates at today’s meeting.

  However, Perng reiterated his warning to home owners to be wary of interest rate increases in the future, which could pose a heavy burden for their housing-loan interest payments.

  In response to lawmakers’ requests, Perng also called for companies selling Japanese products in Taiwan to cut their prices on the back of the yen’s continuous depreciation.

  “Importers and local agents of Japanese products should properly return part of exchange earnings to consumers,” Perng said.

  Perng said companies might not cut the prices that fast as they are still digesting inventories ordered from Japan before the decline of yen.

  Yet Chinese Nationalist Party (KMT) Legislator Lu Shiow-yen (盧秀燕) said inventory is not an issue in this case, as data offered by the Ministry of Finance showed that the amount of applicants for customs declaration has not dropped over the past few months.

  Asked about the feasibility of depreciating the New Taiwan dollar to ease the negative effects of Taiwan not signing free-trade agreements with other countries, Perng said he did not agree with the tactic.

  “If that [strategy] worked, no country would be making efforts to sign free-trade pacts with another,” Perng added.
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