Taiwan's money supply growth slowed last month for a second straight month and reached the lowest growth rate since August 2003, the central bank reported on Thursday.
M2, the broad measure of money supply covering cash in circulation and all deposits, was up 3.47 percent at the end of last month compared with a year earlier, following an annual increase of 4.25 percent in August, the bank's data showed.
A first look at last month's 3.47 percent growth rate -- which fell below the central bank's annual target of between 3.50 percent and 7.50 percent -- raises concern that monetary conditions are a bit tighter than desired, which in theory will lead to an economic slowdown and contractions in financial markets.
But in reality, Taiwan's liquidity in the money markets remains ample because the central bank has used public market operations to drain excess funds from the banking system to help stem inflation.
Furthermore, the significance of the relationship between money supply growth and macroeconomic performance has become weaker in recent times, given that a lot of funds have been moved out of savings and time deposits -- which are included in M2 -- and into stocks, mutual funds and other financial instruments, which are not.
Therefore, the latest money supply data are no cause for concern from the supply side and the bank is likely to wait for the release of more data before finalizing its policy adjustment in its December meeting.
But the figures do confirm an economic scenario where continued capital outflows as well as slower growth in bank loans and domestic investment are here to stay. It is the demand side of the monetary conditions that raises concern.
Central bank statistics show that at the end of last month the annual growth rate of total outstanding loans and investments at major financial institutions was 3.31 percent, lower than a revised 3.77 percent in August. It was the lowest growth rate in three years.
This slower annual growth rate indicates that banks have become more conservative in extending loans after the bad loan problems of the last couple of years. But at the same time, it also shows a lukewarm demand for bank loans from local companies for business expansion or other investments.
Adding more pressure to this scenario was the Cabinet's announcement last week about the lifting of restrictions on stock investments in H-shares and red chips listed in Hong Kong and Macau, as well as in Chinese stocks, by domestic mutual funds.
This example of liberalization was certainly good news for domestic funds and local investors, but it injected some uncertainty into the development of local stock markets, as the government estimates local mutual funds could invest up to NT$40 billion (US$1.2 billion) in H-shares and red chips once the measure takes effect.
While some investors may still favor offshore funds that are not subject to government regulations and can invest in Hong Kong or China at their discretion, the truth is that the recent strong performance of Hong Kong and Chinese stocks may attract more capital outflow if the lack of attractive investment opportunities continues at home.
With continued capital outflows, the momentum of domestic capital markets will be negatively affected and the New Taiwan dollar will face depreciation pressure. That in turn will deter more domestic funds seeking higher yield investment targets.
The real impact of the new overseas investment measure on capital outflows remains to be seen. But the key to resolving this problem is in the government boosting domestic investment, not just the central bank's monetary policy.
The first Donald Trump term was a boon for Taiwan. The administration regularized the arms sales process and enhanced bilateral ties. Taipei will not be so fortunate the second time around. Given recent events, Taiwan must proceed with the assumption that it cannot count on the United States to defend it — diplomatically or militarily — during the next four years. Early indications suggested otherwise. The nomination of Marco Rubio as US Secretary of State and the appointment of Mike Waltz as the national security advisor, both of whom have expressed full-throated support for Taiwan in the past, raised hopes that
Whether in terms of market commonality or resource similarity, South Korea’s Samsung Electronics Co is the biggest competitor of Taiwan Semiconductor Manufacturing Co (TSMC). The two companies have agreed to set up factories in the US and are also recipients of subsidies from the US CHIPS and Science Act, which was signed into law by former US president Joe Biden. However, changes in the market competitiveness of the two companies clearly reveal the context behind TSMC’s investments in the US. As US semiconductor giant Intel Corp has faced continuous delays developing its advanced processes, the world’s two major wafer foundries, TSMC and
Authorities last week revoked the residency permit of a Chinese social media influencer surnamed Liu (劉), better known by her online channel name Yaya in Taiwan (亞亞在台灣), who has more than 440,000 followers online and is living in Taiwan with a marriage-based residency permit, for her “reunification by force” comments. She was asked to leave the country in 10 days. The National Immigration Agency (NIA) on Tuesday last week announced the decision, citing the influencer’s several controversial public comments, including saying that “China does not need any other reason to reunify Taiwan with force” and “why is it [China] hesitant
We are witnessing a sea change in the government’s approach to China, from one of reasonable, low-key reluctance at rocking the boat to a collapse of pretense over and patience in Beijing’s willful intransigence. Finally, we are seeing a more common sense approach in the face of active shows of hostility from a foreign power. According to Article 2 of the 2020 Anti-Infiltration Act (反滲透法), a “foreign hostile force” is defined as “countries, political entities or groups that are at war with or are engaged in a military standoff with the Republic of China [ROC]. The same stipulation applies to
RSS