The central bank yesterday kept its policy interest rate at a record low of 1.125 percent for the second consecutive quarter and slightly raised its forecast for GDP growth this year from 1.52 percent to 1.6 percent.
“The board extended the loose monetary policy to help stabilize consumer prices and support the economy,” central bank Governor Yang Chin-long (楊金龍) said after its quarterly board meeting.
Although Taiwan’s economy has resumed growth and might improve further, a negative output gap might remain, meaning growth of supply would outpace demand.
Photo: CNA
Local tech firms have benefited from a boom in technology products sustaining a low-contact economy, while domestic tourism has staged a V-shaped recovery after the COVID-19 pandemic was brought under control in May, the bank said, after raising its growth projection by 0.08 percentage points based on government spending and private investment as supply chains relocate from China.
Low-interest rates help bolster consumer prices, which might contract 0.2 percent this year, Yang said.
Deflation is not a concern, as the core consumer price index, a more reliable tracker because it excludes volatile items, would increase 0.24 percent, he said.
Taiwan does not need to follow the US Federal Reserve, which overnight indicated that it would keep policy rates near zero for at least another three years, Yang said.
However, Taiwan would not take a different path if other central banks maintain an accommodative stance, he said.
The bank reiterated the need to regulate the currency market when it spots massive capital movements.
It said that the New Taiwan dollar is stable and its ongoing appreciation moderate.
As of yesterday, the NT dollar had picked up 2.64 percent against the US greenback this year, less than the Chinese yuan and other counterparts, Yang said.
The governor disputed media reports that said the central bank restricted sales of US dollars in large amounts by currency traders to ease appreciation pressure on the NT dollar.
“It is inaccurate to characterize a goodwill suggestion as intervention,” Yang said.
The central bank is investigating suspect currency trading by eight grain merchants and four banks, he said.
The probe is not yet conclusive, but the transactions appear out of sync with the firms’ business needs, Yang said, adding that it is a tough task to track foreign capital flows.
The local bourse reported capital inflows in July and outflows last month, while the NT dollar has consistently gained value.
A strong NT dollar is unfavorable for local exporters and life insurers, which face foreign exchange and portfolio losses.
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