New credit controls aim to cool housing market: Central bank chief

Taipei, Oct. 17 (CNA) Central Bank Governor Yang Chin-long (楊金龍) said Thursday that the selective credit controls launched in September represent an effort to cool the housing market and hopefully enable a soft landing for the property market.

Yang made the remarks during a legislative session where he briefed on complementary measures for the seventh round of selective credit controls the central bank announced last month.

Yang discussed his concerns about financial stability in Taiwan amid the overheated housing market over the past year when people bought houses in anticipation of housing prices continuing to surge.

Although a housing bubble is hard to define, Yang said, if there is strong expectation prices will soar and housing prices rise too fast, "this will catalyze a bubble."

The central bank is worried that if market expectations continue, it will be detrimental to the long-term sound development of the real estate market and pose a threat to financial stability. As a result, it decided to take action to curb the expectations of rising housing prices, Yang added.

Taking the bursting of Japan's asset bubble in the early 1990s and the 2007-2008 United States subprime mortgage crisis as examples, Yang indicated that if the government fails to deal with market expectations in a timely and cautious manner, a bubble can occur, leading to economic collapse.

Asked about the effects of the new round of credit control measures, Yang said the results will not be visible in the short term, but said he believes things are moving in a positive direction.

From the perspective of the central bank, the most important step is to lower expectations of rising housing prices to cool the property market, Yang noted, adding that it is best to let the market cool down first and then home prices will come down, allowing for a soft landing in the housing market.

However, the central bank governor did not say whether the central bank will introduce another round of selective credit controls, saying only that it will take time to observe and the bank will pay close attention and review its measures on a rolling basis.

When asked by a lawmaker whether the bank will follow suit after the U.S. Federal Reserve announced a 50 basis point interest rate cut in September, Yang said the situation in Taiwan is different from that in the United States and Taiwan does not necessarily need to follow the U.S. interest rate cut.

Separately, in a written report submitted to the Legislature, the central bank pointed out that the inflation rate in the second half of this year will be lower than the first half because there is no pressure of imported inflation in Taiwan, coupled with the eased pace of increases in service prices.

According to a central bank forecast in September, the annual growth rate of consumer price inflation (CPI) and core CPI, which excludes fruit, vegetables and energy, this year will be 2.16 percent and 1.94 percent, respectively, dropping to 1.89 percent and 1.79 percent, respectively, next year.