Taiwan Today

In a move to check rising consumer prices, the Central Bank of the Republic of China is inclined to allow the NT dollar to moderately appreciate against the U.S. dollar, sources familiar with the issue revealed. The CBC is closely monitoring the country’s consumer prices amid excessive speculative funds in Taiwan’s capital market, and has voiced its concern over the possibility of import-induced inflation, sources said. Market experts pointed out that the central bank is taking steps to absorb such excessive funds, but is not ready to change its stance on maintaining low interest rates. Given the limited effect of interest rate policies on checking price hikes, the central bank is inclined to allow the NT dollar to moderately rise against the greenback in a move to combat import price gains. According to a forecast by the Cabinet-level Directorate-General of Budget, Accounting and Statistics, Taiwan’s consumer price index is expected to inch up by 1.27 percent in 2010. Liang Kuo-yuan, president of Taipei-based Polaris Research Institute, does not expect any major surge in the island’s overall consumer prices, either, as he anticipates oil prices will go up only moderately in the second half of the year. The central bank’s recent moves indicate that the agency intends to use exchange rates as its primary measure to control rising consumer prices, sources pointed out. The CBC is unlikely to change its low-interest rate policy for the time being, they added. Price hikes are an inevitable byproduct of economic growth, sources said. However, a comprehensive increase in the country’s consumer prices is unlikely given weak domestic investment and consumption. The more likely contributors are imports, such as oil and oil products, they explained. In light of the situation, the CBC intends to let a gradually rising NT dollar help enhance the public’s purchasing power and stimulate the local economy, at the same time maintaining a low-interest rate environment to promote private investment and job creation. However, given the export orientation of Taiwan’s economy, the pace of the local currency’s appreciation cannot be too fast, either, sources cautioned. (SFC-THN)