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May 30, 2017

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Central bank expected to maintain key interest rates

TAIPEI, Taiwan -- The Central News Agency (CNA) cited Australia and New Zealand Banking Group (ANZ) as reporting that the central bank is unlikely to raise its key interest rates at its next quarterly policymaking meeting later this month since inflationary pressure is low.

According to local media reports, the central bank has not changed its interest rates in the past 10 quarters.

"We maintain our view that the central bank will remain on hold in the near term," ANZ said in a research note, citing the fact that Taiwan's consumer price index (CPI) registered a slight annual drop in February.

The February CPI fell 0.05 percent year-on-year as a result of a high comparison base in the same month in 2013, when the Lunar New Year was celebrated. The CPI rose by an annual 0.39 percent in the first two months of this year, official statistics showed.

In addition, central bank governor Perng Fai-nan (彭淮南) was quoted as saying that the central bank will consider macroeconomic fundamentals and inflation in its decision on policy rates, ANZ said.

The central bank is scheduled to hold a board meeting on March 27. The interest rate policy review is expected to be on the table. Some are concerned that the central bank might raise the interest rate, making it more burdensome for mortgage holders.

Taiwan's mortgage holders owe on average NT$6.06 million per household. If the central bank raises the interest rate by 0.125 percent, it will add NT$625 to monthly mortgage payments. The late-March policy review will use this fact as a key parameter in future discussions.

Perng pointed out earlier that the interest rate is not the only cause of exceedingly high realty prices in some areas of Taiwan. The housing price problem has to be tackled through various means, including looking at the overall system and observing the supply and demand, Perng said.

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