Stable consumer prices, which are forecast to grow about 1.6 percent this year, indicate that Taiwan’s economy is not overheating and lend support to keeping interest rates unchanged, central bank Governor Yang Chin-long (楊金龍) said yesterday.
Yang made the remarks during a visit by lawmakers from the legislature’s Finance Committee to the central bank to inquire about monetary policy trends, and the economic outlook at home and abroad.
US Federal Reserve board members remain divided about the threat of inflationary pressures and might discuss whether to taper bond purchases during the Jackson Hole, Wyoming, economic policy symposium today, Yang added.
Photo: George Tsorng, Taipei Times
Fed members have said that US inflation of 5 percent is a temporary phenomenon to defend the bank’s money-printing policy and might hold on to current rates until early 2023, he added.
The US can invoke quantitative easing to bolster its economy, because the greenback is a major currency in which countries carry out and settle cross-border trade, Yang said.
The US dollar gains in value during bad times when investors take shelter in the currency — a tactic that other countries cannot imitate, he said.
Yang said he saw no urgency in raising interest rates in Taiwan, where inflationary pressures are mild and benign.
“Inflation sits atop the list of concerns when the central bank draws its monetary policy,” he said.
Consumer prices are expected to increase 1.6 to 1.7 percent this year, suggesting that the economy is not overheating and there is no need for sweeping tightening measures, he said.
The central bank is due to review its monetary policy next month.
Taiwan’s policy rate, currently at a record low of 1.125 percent, is not particularly loose when compared with negative interest rates in Japan and Switzerland, Yang said.
Latin American countries, such as Peru, Chile, Brazil and Mexico, have to raise interest rates to cope with imported inflation, which is not a serious issue in Taiwan, he said.
Taiwan’s economic growth, while vibrant, is largely supported by exports, which have benefited from US-China trade tensions and a severe chip shortage, Yang said.
However, domestic demand-reliant sectors have taken a hard hit from a local COVID-19 outbreak that started in May, he added.
Uneven economic growth lends support to accommodative monetary policy and the government’s plan to issue consumption vouchers to help energize domestic demand, he said.
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