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Talk of the day -- Fed's QE3 to fuel inflation fears

2012/09/15 16:37:57

The sagging morale of Taiwanese stock investors got a big boost Friday thanks to the United States Federal Reserve's launch of a third round of quantitative easing (QE3). The Taiwan Stock Exchange's weighted index closed up 2.1 percent at 7,738.05, the highest close since April.

The market is expected to challenge the 8,000-point mark in the near term, but local scholars and economists were cautious about the impact of the latest round of quantitative easing on Taiwan's economic development.

The following are excerpts from local media coverage of QE3's possible effect on Taiwan:

United Daily News:

"QE3 is not a good thing for Taiwan's economy," warned Gordon Sun, director of the Taiwan Institute of Economic Research's Macroeconomic Forecasting Center.

As U.S. monetary policy eases, international hot money will flow into Asian countries that are good economic performers and have lax regulations on speculation, he said.

Sun predicted that the hot money will prop up the domestic stock market and further boost sentiment in Taiwan's housing market in the near term.

He also expected that capital will pour into commodity markets, leading to sharp rises in the international prices of crude oil, grains, and raw materials such as metals.

Those higher commodity prices will be felt in Taiwan, and, along with higher electricity prices and other inflationary pressures from the QE3 program, will push inflation higher in Taiwan in the fourth quarter.

Sun also warned that the stimulus program will take its toll on Taiwan's exports, which declined from a year earlier for the six consecutive month in August.

The QE3 program is likely to trigger a devaluation of the greenback, leading currencies in other countries including Taiwan to appreciate, and Sun said a more expensive Taiwan dollar will take a bite out of the country's export competitiveness.

Chung-Hua Institution for Economic Research President Wu Chung-shu described QE3 as "a very powerful medicine" that will pump up economic growth in the short term but will also boost inflationary pressures. Everyone will be affected, he said.

China Times:

The QE3-triggered stimulus could very well be short-lived in Taiwan, some local scholars said, advising investors and entrepreneurs to be prudent when making any investment decision.

Polaris Research Institute President Liang Kuo-yuan said he worried capital would flow to high-risk assets, including crude oil, sending oil prices higher over the long-term and further battering the already-stagnant global economy.

Crude oil is not merely a necessity for powering vehicles but also one of the key raw materials in the industrial sector, he said, describing rising oil prices as an extra tax that consumers worldwide must pay.

He contended that it was unfair that the rest of the world had to pay the price of the U.S.' implementation of the QE3 program.

Economic Daily News:

The Chung-Hua Institution for Economic Research said QE3 will threaten Taiwan's goal to hold inflation to under 2 percent this year.

QE3 would trigger price surges in international commodity and crude oil markets, said Liu Meng-chun, head of the institution's Center for Economic Forecasting, who warned that Taiwan could soon face the challenge of imported inflation. (Sept. 15, 2012)

(By Elizabeth Hsu)