Raising interest rates before other economies would cause a surge in incoming funds and create chaos in the nation’s foreign-exchange market, central bank Governor Yang Chin-long (楊金龍) said yesterday.
Overseas funds could also invest in Taiwan’s overheated real-estate market and raise home prices further, Yang said at a meeting of the legislature’s Finance Committee when asked by Chinese Nationalist Party (KMT) Legislator William Tseng (曾銘宗) about a possible rate hike and its likely effects.
Yang said the central bank is closely monitoring how other central banks adjust their monetary policies, because acting alone could pose problems.
Photo: Liao Cheng-hui, Taipei Times
“Taiwan’s stock market remains sound, so if the central bank raises key interest rates by 25 basis points, it would not put much pressure on stocks,” Yang said.
The TAIEX closed down 14.77 points, or 0.08 percent, at 17,803.54 yesterday, after moving in a narrow range throughout the session. The benchmark index has risen 20.95 since the beginning of this year, Taiwan Stock Exchange data showed.
“But a rate hike in Taiwan before other countries act could send the New Taiwan dollar higher against the greenback due to large fund inflows,” he said.
Yang also raised concerns that the heavy influx of funds after a rate increase would boost liquidity in the domestic real-estate market, as soaring home prices have sparked outcries from younger Taiwanese who say they cannot afford to buy a home.
To rein in residential property prices, Yang said the central bank could consider introducing more select credit control measures in the next policymaking meeting.
Three separate rounds of credit control measures targeting institutional and retail home buyers have taken effect since the end of last year, mostly to lower the home loan-to-value ratio to prevent speculation, with mixed results.
Yang said the average home loan-to-value ratio for corporate buyers was lowered to 39 percent, from 64 percent before the measures were put in place, and the same ratio targeting buyers with at least three homes was also lowered.
The central bank has also increased inspections of loans extended by banks operating in Taiwan, including foreign banks, to the property market, urging banks to abide by the regulations to extend mortgages.
The central bank has carried out 51 rounds of inspections of the local banking industry so far this year, Yang said.
The central bank is to hold its next quarterly policymaking meeting on Dec. 16.
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