Increasing economic uncertainty means that interest rates are unlikely to rise in the near future, although a central bank board member said home owners should brace for higher borrowing costs, the central bank said yesterday in the minutes of its quarterly meeting.
Tariff exchanges between the US and China have cast a shadow over the global economic scene, while tumult has deepened on bourses worldwide since the previous board meeting in June, when a steady economy led to unanimous support for a hold on policy changes, the central bank said.
The board’s directors all backed a dovish stance amid concern that low GDP growth in the first six months of the year might slow in the second half due to a higher comparison base last year, the 18-page document said.
“Trade volumes worldwide might weaken as vindictive tariffs take effect,” one member said, adding that the US economy might gather steam, but the eurozone, Japan and China, as well as other Asian economies will likely register slower growth compared with the previous year.
Expectations of interest rate hikes by the US Federal Reserve and trade disputes between the US and China have driven capital flows into US dollar-denominated assets, leading to severe capital flight and currency devaluations in emerging economies, another member said.
The New Taiwan dollar has shed 2.79 percent against the US dollar so far this year, according to the central bank’s Web site.
Central bank Governor Yang Chin-long (楊金龍) in June said that the pace of the decline of the NT dollar exceeded expectations.
“Given Taiwan’s susceptibility to foreign capital flows, policymakers need to be prepared in the second half for necessary adjustments,” several board directors said.
Foreign institutional investors cut net holdings in local shares by NT$5.889 billion (US$191.9 million) yesterday, helping drive the TAIEX’s 1.52 percent decline on turnover of NT$140.389 billion, Taiwan Stock Exchange data showed.
“Future interest rate considerations will be even more complicated and require further deliberations,” one director said.
Economic bellwethers in June started to show mixed results, with export orders shrinking marginally, while corporate and consumer sentiments were on the decline.
A rate hike might be in the pipeline if inflation becomes unanchored or in other unfavorable situations, such as an excessively wide yield spread, another director said in the June meeting.
The central bank said it expects inflation to ease in the second half, when the effect of higher taxes on cigarette prices would taper off.
The world is about to enter a rate hike cycle as the Fed has raised rates, while Europe and Japan might do the same next year, the director said.
Borrowers, notably homeowners, are advised to prepare for risks in case of a rate increase by the central bank, the director said.
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