Fri, Jun 23, 2017 page12

• Central bank keeps rates unchanged

  INFLUENTIAL MONEY: Perng said foreign funds have replaced M1B in swinging the stock market and have dampened the wealth effect for domestic investors

  • By Crystal Hsu / Staff reporter
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  The central bank yesterday kept interest rates unchanged for the fourth consecutive quarter, saying mild domestic inflation and economic uncertainty abroad justified a lenient policy stance.

  “The board decided to keep interest rates intact, as the domestic economy’s growth momentum is likely to slow in the second half of this year, while inflationary pressure remains mild,” central bank Governor Perng Fai-nan (彭淮南) told a news conference after the bank’s quarterly board meeting.

  The bank’s rediscount rate is to remain at 1.375 percent, the collateralized loan rate at 1.75 percent and the unsecured loan rate at 3.625 percent.

  The nation’s export-focused economy remains on course for a modest expansion, but the pace might slow as a low-base effect peters out, Perng said.

  Meanwhile, the output gap, the difference between actual GDP and potential economic performance, remained negative, suggesting room for improvement, Perng said.

  The central bank governor dismissed concerns that low interest rates have contributed to the nation’s stagnant wages, as some have argued that stable consumer prices give employers room to extend the “status quo” on pay levels.

  “While wage hikes might encourage inflation, consumer prices appear to have little bearing on wage levels based on past data,” Perng said, adding that many have ignored the importance and benefits of stable consumer prices, a top mandate for the monetary policymaker.

  Stable and predictable consumer prices are favorable for sustainable economic growth and allow people to maintain similar purchasing power, he said.

  Perng, who is due to retire in February next year, also defended his policy on foreign exchange rates, saying the central bank is not strong enough to dictate global currency trends, although it sometimes take steps to smooth out drastic fluctuations.

  The New Taiwan dollar has gained 11.9 percent against the greenback this year, as foreign funds have flowed into the local and other Asian capital markets in pursuit of high yields, Perng said.

  Local shares pay relatively high dividends compared with regional peers, allowing the TAIEX to cement itself above the 10,000-point mark, he added.

  “Foreign funds, which accounted for 43.8 percent of foreign exchange volume, have replaced monetary supply [M1B] in swinging the local stock market,” Perng said.

  Their growing influence has dampened the wealth effect for local investors, he added.

  Many have forgotten that the NT dollar rose faster when the US Federal Reserve implemented quantitative easing programs, Perng said, in a measured response to calls for intervention by exporters.

  Separately, the nation’s M1B supply, a narrow measure of the amount of money in circulation, last month grew 3.94 percent year-on-year, slower than April’s 4.21 percent annual increase, due mainly to slower growth in passbook deposits, the central bank said.

  M2 supply — which includes M1B, time deposits, foreign currency deposits and mutual funds — last month advanced 4.07 percent annually, compared with April’s 3.63 percent annual growth, due to continued net foreign capital inflows, the central bank said.

  For the first five months of this year, the average annual growth rates of M1B and M2 were 4.77 percent and 3.72 percent respectively, compared with increases of 4.97 percent and 3.64 percent respectively in the first four months, central bank data showed.
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