Raising interest rates before other economies do would result in a surge in incoming funds and create chaos in Taiwan’s foreign exchange market, Taiwan’s central bank governor Yang Chin-long (???) said on Monday.
The overseas funds could also find their way into Taiwan’s overheated real estate market and boost home prices further, Yang said at a legislative hearing when asked by Kuomintang (KMT) lawmaker Tseng Ming-chung (???) about a possible rate hike and its likely impact.
Yang said the central bank is closely monitoring how other central banks adjust their monetary policies because acting alone could pose problems.
“Taiwan’s stock market remains sound, so if the central bank raises key interest rates by 25 basis points, it would not put much pressure on stocks,” Yang said.
“But a rate hike in Taiwan before other countries act could send the Taiwan dollar higher against the greenback due to large fund inflows.”
Earlier this month, Yang hinted that Taiwan’s central bank will not begin raising key interest rates before the Federal Reserve in the United States does so first.
At a two-day policymaking meeting that concluded on Nov. 3, the Fed announced it would downsize asset purchases to take some liquidity out of the market but keep interest rates unchanged.
The U.S. economy has seen rising inflationary pressure, and the market widely believes the Fed will likely start raising rates in July 2022 at the earliest and push through two rate hikes during the year.
At its last quarterly policymaking meeting held in September, Taiwan’s central bank left its key interest rates unchanged for the sixth consecutive quarter, after private consumption took a hit amid a domestic outbreak of COVID-19.
The central bank kept its discount rate at 1.125 percent, the lowest in Taiwan’s history.
Yang raised concerns that the heavy influx of funds after a rate hike will boost liquidity in the domestic real estate market at a time when soaring home prices have sparked outcries from members of the younger generation who say they cannot afford to buy a home.
To rein in soaring residential property prices, Yang said the central bank could consider the possibility of introducing more select credit control measures in the market in the next policymaking meeting.
Three separate rounds of credit control measures targeting both institutional and retail home buyers have been carried out since the end of last year, mostly to lower the home loan to house price ratio to prevent speculation, with mixed results.
Yang said the average home loan to house price ratio extended to organizations has been lowered to 39 percent from 64 percent before the measures were put in place and the same ratio targeting buyers with at least three houses has also moved lower.
The central bank has also increased its inspections of loans extended by banks operating in Taiwan, including foreign banks, to the property market, urging the banking system to abide by the regulations to extend mortgages.
According to Yang, the central bank has carried out 51 rounds of inspections of the local banking industry so far this year.
The central bank will hold its next quarterly policymaking meeting on Dec. 16.
Source: Focus Taiwan News Channel