Central bank may hike interest rate toward end of year
By John Liu, The China PostTAIPEI, Taiwan -- With the U.S. Federal Reserve set to taper off its quantitative easing later this year, analysts believe that the central bank will raise the interest rate by the end of this year or in the first quarter of 2014 at the earliest in order to keep foreign capital in the country.
August 27, 2013, 12:04 am TWN
With the U.S. Fed planning to taper off quantitative easing in the second half of the year, emerging markets are already experiencing capital outflow. Analysts believe that “raising interest rates” is the only means of retaining foreign capital. The central bank of Brazil, one of the lead emerging markets, has already increased its interest rate by 1.25 percent this year.
Market investors expects Brazil's central bank to further raise its interest rate by 0.5 percent to 9 percent on Wednesday in an effort to save Brazilian the real from further depreciation and consequently worsening inflation. Market investors also expect the central bank of Indonesia to raise interest rates in September at the earliest.
Central Bank Governor Fai-Nan Perng (彭淮南), who won his 10th consecutive “A” rating and was named the world's best central banker over the last year by Global Finance magazine, has been able to successfully guard the New Taiwan Dollar against depreciation. Analysts believe that it is unlikely the central bank will raise interest rates soon. However, the investors are curious as to how Perng will respond to the tapering off of quantitative easing and rising interest rates in other parts of the world.
Taiwan's archrival South Korea has lowered its interest rate by 0.25 percent this year. Since both the South Korean won and New Taiwan Dollar are fairly stable, the market expects the central bank not to raise interest rates in the short term. However, foreign investors expect Taiwan to follow the U.S.'s steps to raise interest rates by the end of this year or the first quarter of 2014 at the earliest.
M1B and M2 Annual Growth Rose
Monetary Aggregates For the month of July, the monthly growth rates of the monetary aggregates M1B and M2, measured on a daily average basis, were 0.89 percent and 0.80 percent, respectively -- both higher than last month.
The annual growth rates of M1B and M2 rose to 8.63 percent and 5.42 percent, respectively. The increases were mainly because of net foreign capital inflows, the central bank said. For the first seven months of this year, the average annual growth rates of M1B and M2 were 6.41 percent and 4.08 percent, respectively.
Emerging Markets' Interest Rates
Statistics data show that while most countries have lowered interest rates this year, there are seven countries that have increased interest rates. Brazil and Turkey are two of these countries. Turkey started raising interest rates in late August, while Brazil has increased interest rates several times this year.
It is believed that Brazil, Russia, India and China (the BRICs) and Southeast Asian countries have been affected by the U.S. Fed's announced policy of tapering off quantitative easing. Southeastern countries are expected to lower interest rates to help stock markets, once an outflow of foreign capital occurs.