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Head of central bank says nation will not experience deflation

TAIPEI, Taiwan -- Taiwan's central bank governor, Perng Fai-nan (彭淮南), stressed yesterday that Taiwan will not see deflation, and that he expects inflation to exceed 1 percent in March.

Premier Jiang Yi-huah (江宜樺) led members of the Cabinet to the Legislature to answer questions from lawmakers yesterday.

The consumer price index (CPI) has been rising less than 1 percent for nine consecutive months, and the index even declined 0.05 percent in February, according to the latest data released by the Directorate General of Budget, Accounting and Statistics.

Legislator Liao Cheng-ching (廖正井) asked if Taiwan will see deflation in the near future, and whether or not it is necessary for the government to follow Japan's lead in rolling out quantitative easing (QE) measures.

In response, Perng said that Taiwan will not see deflation for sure, and that consumer prices have been rising at a moderate pace. Research institutes have predicted that Taiwan's annual CPI would reach 1 percent, Perng said, adding that he forecast March's CPI will exceed 1 percent.

Abenomics won't Apply to Taiwan

In regards to whether Taiwan should heed the lead of Abenomics — economic policies advocated by Japanese Prime Minister Shinzo Abe — Perng said that since much difference exists between Japan and Taiwan, it is not appropriate for Taiwan to roll out QE. For instance, Japan rolled out loans at a much lower pace between 1992 and 2012, and saw only 0.8 percent of real GDP growth for two decades. Taiwan, on the other hand, has rolled out loans at a stable pace and enjoyed a 4.7-percent real GDP growth for two decades, Perng said.

Furthermore, Taiwan's version of QE has existed for a long time. During the 2008 financial crisis, the overnight interbank call-loan rate was adjusted from 2.2 percent to 0.1 percent, which was in fact Taiwan's version of QE, Perng explained, adding that Taiwan's real interest rate has also been lower than Japan's.

According to Kuomintang lawmaker Lu Shiow-yen (盧秀燕), Chang Hwa Commercial Bank (彰化銀行), which is partially owned by the government, raised its mortgage interest rate by 0.1 percentage point. As such, a NT$1 million mortgage would result in additional interest payment of NT$1,000 per year. Lu questioned if the government is trying to suppress real estate prices on one hand, while raising the interest rate on the other.

Finance Minister Chang Sheng-ford (張盛和) would not comment on Chang Hwa Commercial Bank's business policy, but said consumers can shop around to find the best mortgage.

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