The central bank's interest rate hikes last week showed its determination to balance the risk of higher inflation against the risk of weakening the local currency and encouraging continued capital outflows.
While the fears of a US economic recession amid the slump in the housing market prompted the US Federal Reserve to cut its benchmark rates earlier last week, the central bank appeared to want to go its own way because it didn't think the international financial market woes would seriously impact this country.
Taiwan still faces the risk of higher inflation because of rising oil and raw material prices worldwide as well as a possible fluctuation in food prices as a result of seasonal climate changes. Just last week, oil prices soared to new highs on international markets, approaching US$85 a barrel.
Rising commodities prices worldwide will eventually force manufacturers to pass on increased costs to consumers. The government predicts the inflation rate will increase 2.34 percent in the second half of the year from a year earlier, compared to the 0.61 percent increase in the first six months.
Inflation is clearly the central bank's concern and the bank has to address this issue by boosting the exchange value of the NT dollar, or it would heap extra pressure on consumer prices as the cost of imported goods keeps climbing.
But the central bank is also facing the challenge of continued capital outflows. This problem is so serious that since late May, the bank has used every available opportunity to induce domestic investors to keep their money onshore.
Taiwan's interest rates are the second-lowest in the region after Japan's, and many Taiwanese investors and companies have reallocated their investment portfolios to higher-yielding assets abroad.
To counter this trend, the central bank has to narrow the spread between interest rates in Taiwan and other countries, particularly the US. The latest rate adjustment narrowed the spread between the Taiwanese and US rates by 1.5 percent.
The normalization of interest rates will continue, given that central bank Governor Perng Fai-nan (
The bank has shown its determination to stem capital outflows and has continued to intervene in the currency markets to boost the NT dollar, but pressure on the currency to rise remains due to excess savings and a poor domestic investment environment -- issues outside the bank's remit.
Still, the biggest challenge facing the central bank is balancing a stable currency exchange and monetary policy independence.
Taiwan should keep its currency stable because a stronger NT dollar will hurt exports while a big fall in the currency will lead to capital outflows. People can factor a steady currency rise or fall into their business costs. But it is when the pace of appreciation or depreciation is too fast that problems arise for the economy.
In addition, the independence of the central bank is absolutely essential to ensure its credibility despite political and business pressure.
The bank's latest rate adjustment showed its monetary policy independence, yet took into account public interests and safeguarded the stability of consumer prices. The bank should maintain this spirit in December and in the future.
In a stark reminder of China’s persistent territorial overreach, Pema Wangjom Thongdok, a woman from Arunachal Pradesh holding an Indian passport, was detained for 18 hours at Shanghai Pudong Airport on Nov. 24 last year. Chinese immigration officials allegedly informed her that her passport was “invalid” because she was “Chinese,” refusing to recognize her Indian citizenship and claiming Arunachal Pradesh as part of South Tibet. Officials had insisted that Thongdok, an Indian-origin UK resident traveling for a conference, was not Indian despite her valid documents. India lodged a strong diplomatic protest, summoning the Chinese charge d’affaires in Delhi and demanding
The wrap-up press event on Feb. 1 for the new local period suspense film Murder of the Century (世紀血案), adapted from the true story of the Lin family murders (林家血案) in 1980, has sparked waves of condemnation in the past week, as well as a boycott. The film is based on the shocking, unsolved murders that occurred at then-imprisoned provincial councilor and democracy advocate Lin I-hsiung’s (林義雄) residence on Feb. 28, 1980, while Lin was detained for his participation in the Formosa Incident, in which police and protesters clashed during a pro-democracy rally in Kaohsiung organized by Formosa Magazine on Dec.
Watching news footage of Chinese Nationalist Party (KMT) officials shaking hands and exchanging pleasantries with their counterparts across the Taiwan Strait, I could not help but feel a profound sense of temporal displacement. As a member of the generation born after the lifting of martial law and raised under modern civic education, I truly want to ask the KMT: “Do you not see who the true villain is?” In 1949, the Chinese Communist Party used a bloody civil war to drive the KMT into exile in Taiwan. In the decades that followed, it has sought to completely erase the existence
President William Lai (賴清德) on Sunday congratulated Japanese Prime Minister Sanae Takaichi and her Liberal Democratic Party (LDP) on their historic landslide victory in Japan’s general election. The LDP secured the largest single-party majority in post-World War II Japan, winning 316 seats. The win is expected to strengthen ties with Japan’s allies and potentially deter Chinese aggression in the region. American Institute in Taiwan Director Raymond Greene on Monday said that under Takaichi’s leadership, he anticipates deeper coordination among the US, Japan and Taiwan to promote regional stability and prosperity. US President Donald Trump has also shown his strong support for Takaichi,
RSS