Monetary tightening could be continued, slowed or halted in December depending on how global inflation and the economy are projected to evolve next year, central bank Governor Yang Chin-long (楊金龍) said yesterday, adding that uncertainty makes forecasting difficult.
Yang spoke about his policy intentions at a meeting of the Third Wednesday Club, a local trade group, to help the private sector gain a better understanding of the central bank’s decisionmaking process.
Taiwan’s economy would probably lose further momentum next year, while consumer price growth is expected to fall below 2 percent, warranting a cautious policy approach, Yang said.
Photo courtesy of the central bank
S&P Global Market Intelligence’s latest projections show that recessions might hit in the US, the eurozone and the UK next year, he said, adding that the research body expects GDP growth of 2.3 percent for Taiwan.
That is more conservative than the central bank’s growth projection of more than 3 percent, Yang said.
Lingering COVID-19 factors, geopolitical tensions, a stubbornly high inflation and drastic global monetary tightening are driving up economic risks and suggest huge and delicate challenges for central bankers, he said.
It is not wise for the central bank to give guidance, as its credibility might be harmed given that Taiwan’s small and open economy is so susceptible to external factors, Yang said.
Taiwan’s exports abruptly slipped into contraction last month as demand for technology products plummeted due to an economic slowdown in China, the US and elsewhere, he said.
Recession fears have played havoc on the TAIEX and the local currency, although Taiwan’s economy has been relatively resilient, he said, adding that the nation has a trade surplus so far this year, while major trade rivals South Korea and Japan have reported trade deficits for months.
S&P Global predicted that GDP growth would slow to 1.8 percent in South Korea and 1.2 percent in Japan next year.
ASEAN markets are expected to grow 4.3 percent.
Yang said that ongoing capital outflows do not necessarily stem from Taiwan’s widening interest rate gap compared with advanced economies.
The US Federal Reserve raised interest rates by 4.25 percent between 2004 and 2006, but Taiwan received net fund inflows of more than US$30 billion that lent support to the New Taiwan dollar, he said.
Global capital movements have a lot to do with portfolio managers’ asset price evaluations and risk calculations, Yang said.
The NT dollar’s value is therefore largely decided by supply and demand, and the central bank would intervene only when it spots abnormal movements to help maintain market stability, he said.
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