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.

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.”

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.

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.

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.

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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.)

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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

Taiwan’s central bank wants to limit the amount of capital China can invest in local stocks as new rules come into play that will allow Chinese investors to trade on Taiwan’s stock markets for the first time.

The Financial Supervisory Commission, which has the authority to set limits on Chinese funds, has been approached by central bank officials eager to keep controls tight, said Lu Ting-chieh, the commission’s chief secretary. Read more