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Taiwan leaves interest rate unchanged, raises reserve requirement ratio to cool property market

Tan KW
Publish date: Thu, 13 Jun 2024, 07:18 PM
Tan KW
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Taiwan’s central bank kept its benchmark interest rate unchanged as concern about inflation recedes, while boosting the amount of funds banks must hold in reserve.

The monetary authority left borrowing costs at 2% - the highest since 2008 - at its quarterly meeting on Thursday. All but one of the 28 economists surveyed by Bloomberg News predicted a hold.

The central bank also increased lenders’ reserve requirement ratio (RRR) for the first time since September 2022, saying the move would help slow the flow of credit into the real estate market. It also tightened a curb on buying property.

Taken together, the moves appear aimed at keeping the economy on track while reining in the real estate market. The economy has gotten a boost this year from the artificial intelligence boom, and central bank governor Yang Chin-long said at a briefing that the economy’s momentum was improving moderately.

While the monetary authority lifted its 2024 economic expansion forecast to 3.77% from 3.22%, it warned growth in the second half would be slower than in the first.

Yang has recently indicated that inflation - which has been propelled by hikes to electricity prices - was becoming less of a concern. Although the pace of price gains has been slow compared to elsewhere in the world, even slower wage gains have been eating away at household earnings.

“The interest rate pause is expected as the impact of the electricity tariff hike had been contained,” said Woei Chen Ho, an economist at United Overseas Bank Ltd. “The RRR increase is targeted at property prices, which have continued to rise at a relatively fast pace despite the monetary tightening.”

Raymond Yeung, greater China chief economist at Australia & New Zealand Banking Group Ltd, said the central bank was unlikely to hike interest rates the rest of the year given expectations for slower growth and cooling inflation.

The central bank has signalled that 2% is its comfort level for price rises. On Thursday, it cut its forecast for inflation this year to 2.12%, from its estimate of 2.16% in March.

Concern over rising prices had prompted the central bank to surprisingly hike rates at its last meeting, even as the rest of the world was preparing for cuts.

The central bank also lowered a mortgage cap for second homes in some areas for the first time in a year. That measure, along with raising the RRR by 25 basis points, highlights the government’s worries about rising home prices.

The central bank said the RRR hike would drain about NT$120 billion from the banking system. 

Housing costs remain stubbornly high in the island of 23 million people, after climbing for 22 straight quarters to a record.

The central bank’s move to increase the RRR was not a precursor to future policy tightening, said Christopher Wong, a foreign exchange strategist at Oversea-Chinese Banking Corp.

“It is probably more of a case of tightening liquidity,” he said. 

 


  - Bloomberg

 

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