Taiwan has raised rates 12.5 basis points, or an eighth of one per cent, sticking to its plan to normalise rates. The move was widely expected.
Consumer prices rose sharply between January and February – the first substantial increase since October last year. Since then prices have mostly fallen or been static. The less volatile annual rate is more modest, showing a 1.33 per cent gain on the year. The CBC forecasts inflation of 2 per cent for the year. Read more
By Ralph Jennings in Taipei
It hasn’t been an easy year for Taiwan’s central bank. The authority – which uses exchange rates to manage the economy – grappled in early 2010 with rapid currency gains as investors expected the Chinese yuan to pull the rest of emerging Asia higher.
In October and November the central bank fought back as the Taiwan dollar surged about 3 per cent as hot money flowed into Asia after the United States launched a new round of monetary easing. On Tuesday the currency went at it again, but the central bank may stay on the sidelines this time.
The Taiwan dollar broke its key psychological barrier of T$30 per US dollar, rising as high as T$29.927 in the first hour of trade. An intra-day break past the T$30 mark was last seen in early 2008 on euphoria over the election of Taiwan President Ma Ying-jeou as markets expected him to forge new trade ties with economic powerhouse China. It has not closed a session above T$30 since 1997, before today’s central bank Gov. Perng Fai-nan took control. Read more
Officials from Taiwan’s central bank have rejected the implication of currency undervaluation in a chart used by Ben Bernanke. The offending graph – to the right – shows changes in the real effective exchange rate on its vertical (y) axis. Taiwan’s currency weakened by 2.8 per cent in real terms between September 2009 and 2010, according to this Fed chart. Taiwan says it fell by just 0.2 per cent, and argues that REER is not a good measure of undervaluation anyway.
At stake is responsibility for volatile capital flows that add to inflation in emerging markets and threaten to destabilise recovery. Emerging markets point to the Fed’s stimulus programme. But Mr Bernanke argued in his speech that the Fed’s $600bn stimulus programme was good for the world economy, refusing to accept responsibility for the extra inflationary pressure flowing through to emerging markets. In spite of former chair Alan Greenspan’s comments to the contrary, the Fed also continues to deny any attempt deliberately to weaken the dollar.
Indeed, Mr Bernanke accused emerging market economies of spending their reserves to slow the appreciation of their currencies. Hot money, he argued, was flowing into emerging markets regardless of Fed actions, because investors expected currencies they were buying to strengthen further. Since – by this chart – Taiwan’s currency has strengthened the least (indeed, has weakened), the implication is that Taiwan is one of the worst ‘offenders’. Read more
Taiwan just expanded its armoury against hot money: its financial regulator has apparently accepted a proposal from the central bank to accept only US dollars as cash collateral for bond borrowing. The move is intended to bar the use of bond borrowing as a means of speculating on Taiwan’s currency. There is no official confirmation (in English, at least) on the Financial Supervisory Commission or central bank websites but the news is widely reported from local sources. While addressing the Legislative Yuan’s Finance Committee, FSC chairman Chen Yuh-chang also voiced reservations about a more direct ‘hot money’ tax, saying it could dramatically affect domestic equities. Read more
Robust growth, rising global prices and expanding credit have prompted Taiwan’s central bank to increase its key rates by 12.5bp. The move, effective Friday, takes the discount rate to 1.5 per cent, 50bp above its record low and equal to its 2003-4 low (see chart).
Easy credit has fuelled real estate and land speculation, which is clearly troubling the Bank: five of the 11 paragraphs are dedicated to the subject. Interest rates are only part of the Bank’s toolkit: several “targeted prudential measures introduced by the CBC are an integral part of the efforts to enhance risk management for real estate loans.” Read more
For the first time since June 2008, the central bank of Taiwan has raised rates – by 12.5bp. Central bank information shows the discount rate now standing at 1.3275 per cent, and collateral and non-collateral rates at 1.75 and 3.625 per cent, respectively. Rates had been static since the last cut, of 25bp, in February 2009. Read more
Bloomberg reports an end to the crisis-time policy of excess money in Taiwan:
Taiwan said it would issue longer-dated certificates of deposit to soak up extra liquidity in the economy. Governor Perng Fai-nan and his board left the discount rate on 10-day loans to banks at 1.25 per cent, as forecast. “The central bank has exited quantitative loose policy, now monetary policy has returned to normal,” Mr Perng told reporters in Taipei. Read more
From Reuters:
A stronger Taiwan dollar and a weak job market would help ease rising imported inflationary pressure, according to a central bank report seen by Reuters on Monday. The report did not elaborate. Central Bank Governor Perng Fai-nan is set to speak on the report to Taiwan’s parliament on Wednesday. The Taiwan dollar had climbed nearly 1 per cent this year as of Friday but remains among the worst performers in Asia. Read more
Journalists tend to like big numbers, but small ones will do when there seems to be a trend. China and Taiwan are both ‘tightening’ policy, says Business World. Fair play on China: the central bank has again raised the yield on its one-year bills, compounding a number of tightening measures. But Taiwan? Taiwan has raised the overnight interbank lending rate by 0.8 of a basis point. (A basis point is 0.01 per cent.)
Taiwan plans to set a limit on the total value of securities Chinese investors can buy under new rules due to come into force on Saturday.
Wu Tang-chieh, deputy chairman of the Financial Supervisory Commission, told this to Bloomberg but did not provide a figure and would not comment on a report in the Commercial Times that the central bank is proposing a ceiling of $500 million shares in Taiwan-listed companies. The ceiling in the current memorandum is $1bn. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
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