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COST OF LIVING/Central bank expected to leave rates unchanged: Economists

06/10/2024 05:45 PM
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The Central Bank of the Republic of China (Taiwan) in Taipei. CNA file photo
The Central Bank of the Republic of China (Taiwan) in Taipei. CNA file photo

Taipei, June 10 (CNA) The Central Bank of the Republic of China (Taiwan) is expected to leave its key interest rates unchanged but to increase restrictions on the property market to reign in market manipulation in its policymaking meeting next week, economists said.

In the last quarterly policymaking meeting held on March 21, the central bank surprisingly raised interest rates by 12.5 basis points, despite the U.S. Federal Reserve maintaining its monetary policy a day earlier.

After the rate hike, the local discount rate rose to 2 percent, with the rate on accommodations with collateral at 2.375 percent, and the rate on accommodations without collateral at 4.250 percent.

Speaking with CNA, Wu Meng-tao (吳孟道), head of the sixth research division of the Taiwan Institute of Economic Research (TIER), said the March surprise rate hike pushed the discount rate to a 15-year high, which somewhat helped to cap inflationary pressure.

March 21: Central bank announces surprise interest rate rise of 12.5 basis points

May 4: Taiwan's central bank board member does not rule out further rate hike

In May, Taiwan's consumer price index rose 2.24 percent from a year earlier, higher than the 2 percent central bank target. In the first five months of this year, the CPI grew 2.24 percent, also topping the 2 percent target.

This time, Wu said, the central bank is expected to leave interest rates unchanged in the meeting set for Thursday (June 13).

Wu cited Yang Chin-long (楊金龍), the central bank governor, as saying that the more than 2 percent growth was not necessarily problematic as Taiwan's inflation was relatively low compared to many other countries.

Wu said that given major central banks in the world, including the Bank of Canada and the European Central Bank, kicked off rate-cut cycles last week, the Fed was likely to follow at some point later this year.

Under such circumstances, Wu said the local central bank would likely leave its monetary policy unchanged in the near future.

When asked whether the local central bank would continue hiking rates to suppress the booming property market, Wu said any rate increase would be implemented to cap inflation, rather than reducing home transactions.

June 6: Taiwan's May CPI growth rises above central bank target

May 30: Taiwan's GDP growth forecast raised to 3.94% for 2024: DGBAS

Meanwhile, Liu Pei-chen (劉佩真), a researcher at the TIER's Taiwan Industry Economics Database, said she expected the central bank would announce a sixth round of select credit controls on the local property market Thursday.

The number of transactions of homes, offices and shops in the six largest cities -- Taipei, New Taipei, Taoyuan, Taichung, Tainan and Kaohsiung -- increased 30 percent in the first five months of this year from a year earlier.

In addition, Liu said many semiconductor suppliers and artificial intelligence technology developers have been increasing their talent pools, further boosting the property market.

As well as increasing home sales, land transactions in Taiwan soared about 164 percent from a year earlier in the first quarter of this year, local news media reported recently. Liu said strong land purchase growth by property developers was evidence of their faith in the home market.

Since December 2020, the central bank has launched five rounds of select credit controls on the local property market.

Central Bank Governor Yang Chin-long. CNA photo June 6, 2024
Central Bank Governor Yang Chin-long. CNA photo June 6, 2024

In a legislative hearing held on June 6, Yang said that home prices remaining high and the ratio of mortgages to total bank lending continuing to rise will be discussed at the Thursday meeting.

Liu said the central bank will likely come up with measures including reducing the ratio of mortgages to the prices of second homes to increase its grip on the property market.

In June 2023, the central bank announced the fifth round of selective credit controls on the home market by imposing a mortgage ceiling of 70 percent of the value of an individual's second home in the largest six cities and Hsinchu City and Hsinchu County, the eight major property markets in Taiwan.

In addition, Liu said the central bank is also likely to cap bank lending for land purchases.

(By Chang Ai and Frances Huang)

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