Interest rates unchanged, required reserve ratio raised: Central Bank

Taipei, Sept. 19 (CNA) After wrapping up a quarterly policymaking meeting on Thursday, Taiwan's central bank said it has decided to leave its key interest rates unchanged.

However, the central bank also decided to raise the required reserve ratio -- the proportion of deposits regulators require banks to hold in reserve and not loan -- by 25 basis points to rein in high house prices after a quarter percentage hike in June.

With the local consumer price index (CPI) staying above the 2 percent alert level set by the central bank, the central bank institution did not follow the U.S. Federal Reserve to start a rate cut cycle overnight.

In the first eight months of this year, the CPI rose 2.32 percent from a year earlier after inflation in August hit 2.36 percent largely on higher food prices.

After the decision, the discount rate remains at 2 percent -- which is still the highest in 15 years -- with rate on accommondations with collateral at 2.375 percent and the rate on accommodations without collateral at 4.250 percent.

The decision represents the second consecutive quarter in which the central bank has resolved to maintain its key interest rates.

Analysts had widely anticipated the central bank would raise the required reserve ratio again as the local house market remains hot and mortgage extensions by banks are on the rise. Analysts said a hike in required reserve ratio is expected to be effective in preventing funds from flowing from banks to the housing market.

On the back of the government's latest mortgage program to help young people buy homes by providing subsidies on interest payments, mortgages extended by Taiwanese banks accounted for 37.4 percent of their total lending at the end of June, which has come closer to a historic level of 37.9 percent.

In addition, the central bank has also lowered the loan-to-value ratio -- the percentage of the value of the house that can be carried in a mortgage -- for individual buyers for their second-home mortgages from 60 percent to 50 percent, applied to the entire country.

This nationwide measure aims to reduce property speculation by forcing buyers to put up more of their own capital to purchase property. Currently, only Taipei, New Taipei, Taoyuan, Taichung, Tainan, Kaohsiung cities and Hsinchu City and County have such controls.

Meanwhile, the loan-to-value ratio for institutional and individual buyers around the country for luxury homes and third-house mortgages has been lowered to 30 percent from 40 percent, while the loan-to-value ratio for property developers who collateralize their unsold homes has been lowered from 40 percent to 30 percent.

In addition, no grace period is allowed for individual buyers who already own a home but will buy their first one, which means they will be required to pay interest and the principals at the same time. Currently, such house buyers are allowed to only pay interest for a period of time agreed upon by banks.

The central bank's measures announced on Thursday are the seventh round of selective credit controls aimed at cooling down the property market.

According to the central bank, the value of luxury homes in Taipei is no less than NT$70 million (US$2.19 million), NT$60 million in New Taipei and NT$40 million for the rest of the country.