Mon, Sep 09, 2024 page12

• ECB likely to cut interest rates again

  A SHIFT: The move comes days before the expected rate reduction from the US Fed next week and shows economies are pivoting more in tandem to support economic growth

  • Staff writer, with Bloomberg and CNA
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  The European Central Bank (ECB) would probably cut interest rates on Thursday in a prelude to a US move the following week, as the global monetary cycle tilts toward more synchronized easing.

  Eurozone officials have signaled that they would deliver a second reduction in borrowing costs, following up on July’s move, which would be scrutinized by investors looking for policymakers’ intentions for any further steps later this year. At least one more cut is seen as likely this year.

  Along with the rate move from the Bank of Canada on Wednesday last week, the ECB meeting’s timing — days before an expected reduction by the US Federal Reserve on Wednesday next week — underscores how large, advanced economies are now shifting more in tandem as officials pivot to supporting economic growth now that they judge inflation risks to have faded.

  

  The European Central Bank headquarters in Frankfurt, Germany, is pictured on July 18.

  Photo: Reuters

  In the eurozone, easing in a key measure of wage growth during the second quarter would have helped embolden policymakers.

  Similarly, a US consumer price report due on Wednesday might offer Fed officials reassurance that inflation pressures are stabilizing, following data on Friday last week that showed US hiring fell short of forecasts.

  For investors, the question hanging over this month’s meetings is the extent to which such rate reductions herald a deeper easing cycle that might not only remove constrictions on major economies, but also begin to stimulate them.

  Meanwhile, Taiwan’s central bank could come up with more control measures for the local housing market in its upcoming quarterly policymaking meeting on Sept. 19 at a time of high-flying home prices and rising mortgages, Taiwan Institute of Economic Research (TIER) Economic Forecasting Center director Gordon Sun (孫明德) said on Saturday.

  On the back of the government’s latest mortgage program to help young people buy homes by providing subsidies on interest payments, mortgage loans accounted for 37.4 percent of banks’ total lending at the end of June, close to the historic high of 37.9 percent.

  “Even if the Fed cuts interest rates this time, Taiwan’s central bank would not necessarily follow suit,” Sun said.

  “I expect the central bank would continue to tighten its monetary policy. A rate hike or an increase in the required deposit reserve ratio is likely,” Sun said. “In addition, more selective credit control is also possible to rein in the home market.”

  The central bank in June left its key interest rates unchanged, but raised the required deposit reserve ratio, which is the proportion of deposits regulators require banks to hold in reserve and not in loans, by 25 basis points.

  In addition, the central bank also imposed the sixth round of selective credit controls by lowering the loan-to-value ratio, the percentage of mortgages to the property value, for an individual’s second home from 70 percent to 60 percent in Taipei, New Taipei City, Taoyuan, Taichung, Tainan and Kaohsiung as well as Hsinchu City and County.

  Areas where Taiwan Semiconductor Manufacturing Co (台積電) plans to build facilities, such as Chiayi County where the chipmaker is to build advanced integrated circuit assembly plants, also saw a booming home market, TIER’s Taiwan Industry Economics Database researcher Arisa Liu (劉佩真) said.

  Liu said it is possible for the central bank to add targeted areas in its new selective credit controls or cut the value-to-loan ratio further.

  The central bank since late last month has required banks to submit proposals to lower their ratios of mortgage loans.
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