The US central bank’s announcement that it will terminate its quantitative easing measures by the end this month will have only a minor impact on Taiwan’s economy, because it was in line with market expectations, the National Development Council (NDC) said yesterday.
Starting in January, the US Federal Reseve cut its bond-buying scheme by US$10 billion every month throughout the year, from US$85 billion.
The Fed’s announcement on Wednesday was long expected, NDC Director Wu Ming-huei (吳明蕙) said at a press conference.
Wu said the market had already reacted to the Fed’s tapering plan in May and June last year, when stock market of many emerging economies, including Russia, Indonesia and Turkey, plummeted as money exited these countries.
Citing the IMF’s studies, Wu said that only countries with unstable stock markets or high levels of foreign debt would suffer from the tapering plan, and Taiwan is not one of them.
Therefore, the end to the Fed’s quantitative easing is not likely to cause any significant money outflows for Taiwan, Wu said.
The end of the Fed’s bond-buying will also not cool down the economic momentum in the US as the Fed has been conducting its tapering in a gradual way, she said. On the other hand, the withdrawal of quantitative easing does not indicate any tightening of liquidity or any interest rate hike in the short term, Wu said.
The action proves that the economy in the US is strong, which will benefit Taiwan’s exports, she said.
“Rather, we would be worried if the Fed did not want to terminate the policy as it planned,” she added.
However, Gordon Sun (孫明德), director of the macroeconomic forecasting center for the Taiwan Institute of Economic Research (TIER, 台灣經濟研究院), said the talks about quantitative easing termination would still affect the stock market and foreign exchange market in Taiwan, as indicated by the decline in the TAIEX that started last month.
While the Fed said in a statement that it will continue to keep its key interest rates unchanged “for a considerable time,” there is speculation that the US central bank may raise its interest rate by the end of the third quarter next year at the earliest.
“Such speculation has caused money to move into the bond market in the US from other countries,” Sun said.
As money flows to the US, there will be pressure for the New Taiwan dollar to depreciate against the US dollar, he said.
However, the depreciation of the New Taiwan dollar against the US dollar will not benefit Taiwan’s exports because Japan, Europe, China and other emerging economies will still maintain an expansionary monetary policy to boost their economies, Sun said.
Outflows in Europe are likely to increase the burden for the area to fight deflation, and if the economy in Europe worsens next year, it might hurt Taiwan’s exports of electronics devices, information and communications technology products and automobile parts, Sun said. Exports to Europe account for 10 percent of Taiwan’s total exports, he added.
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