Fri, Mar 15, 2024 page12

• Central bank to be cautious on inflation: governor

  MONETARY POLICIES: Investors should be alert to potential risks regarding ETFs, as the hype around the topic seems to be the result of herd behavior, Yang Chin-long said

  • By Crystal Hsu / Staff reporter
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  The central bank would cautiously deal with the inflation issue next week in a quarterly policymaking meeting, as expected electricity rate hikes are feeding inflation fears, bank Governor Yang Chin-long (楊金龍) said yesterday.

  “The board of directors will approach the issue very carefully when they meet and review policy rates on Thursday next week,” Yang told a meeting of the legislature’s Finance Committee in Taipei.

  If the inflationary gauge persistently stays above the 2 percent alert, the era of low interest rates might be over, Yang said, adding that consumer price index (CPI) growth used to hover at about 1 percent, but it has exceeded 2 percent in the past few years.

  

  Central bank Governor Yang Chin-long speaks at a meeting of the legislature’s Finance Committee in Taipei yesterday.

  Photo: Chu Pei-hsiung, Taipei Times

  The CPI grew 2.95 percent in 2022 and 2.49 percent last year.

  The nation’s top monetary policymaker in December last year forecast a 1.89 percent CPI increase this year before the government made known plans to raise electricity rates.

  The governor said that inflation expectations might increase consumer price movements, which is unfavorable for the fight against inflation.

  Electricity fee hikes are expected next month.

  It is too early to pass judgement on the matter as the Ministry of Economic Affairs would arrive at its conclusions after sizing up the Cabinet’s subsidy for debt-ridden Taiwan Power Co (台電), Yang said.

  The rate hikes would be less drastic if the subsidy reaches NT$150 billion (US$4.76 billion), he said.

  Yang refused to comment on whether the central bank would renew monetary tightening if the CPI fails to return to the 2 percent mark this year.

  If the price trend persists, future interest rates would not be as low as before the tightening in 2022, he said.

  The matter warrants care and caution, Yang added.

  What concerns the central bank is the domino effect, or sweeping price hikes by retailers and wholesale operators to pass extra financial burdens to customers and end-users, Yang said.

  However, the central bank does not need to follow the steps of the US Federal Reserve or the European Central Bank, which have contemplated rate cuts to prevent economic hard landings, he said.

  Taiwan’s policy rate remains relatively moderate at 1.875 percent, he added.

  Separately, Yang urged local investors to be alert to possible risks, as they eagerly seek to participate in the fundraising campaigns launched by several securities firms to sell high-dividend exchange-traded funds (ETFs).

  The enthusiasm for ETFs was a “herd behavior,” a term used to describe a trend of people rushing to follow the actions of others, he said.

  Meanwhile, the central bank would keep a close eye on the housing market, as loans for the property industry continue to grow, Yang said.

  The bank would review its selective credit control policy, he said.

  The central bank has introduced several rounds of selective credit controls on local banks since December 2020 to cool down the property market and rein in rising housing prices.

  Additional reporting by CNA
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