The Central Bank of the Republic of China announced the third round of interest rate hikes this year Dec. 30 amidst steady domestic economic recovery sustained by strong global demand.
The increases will bring the country’s discount rate, rate on accommodations with collateral and accommodations without collateral to 1.625 percent, 2 percent and 3.875 percent, respectively.
Taiwan’s exports, industrial production and retail business continued to gather momentum in the fourth quarter of the year, giving rise to an improving job market almost comparable to the pre-Great Recession level, the central bank pointed out.
The banking sector also saw its mortgage lending activities noticeably pick up steam to push up the overnight call rate.
While the consumer price index registered mild growth of 0.94 percent during the first 11 months of the year, rising raw material costs are expected to add a 1.85-percent gain to the CPI in 2011, the agency added.
The central bank said in light of these encouraging signs, its board of directors “judges that a rate hike is conducive to price and financial stability.”
In a bid to check real estate speculation and strengthen the banking sector’s credit risk management, the agency also announced amendments to the Regulations Governing the Extension of Housing Loans in Specific Areas and Land Loans by Financial Institutions.
These tightening measures include lowering the loan-to-value ratio for mortgages and expanding such specific areas to include three districts in the newly formed Xinbei City. “Such selective measures are more effective in curbing escalating asset prices than rate hikes,” said Central Bank Gov. Perng Fai-nan.
The central bank also drastically increased the sector’s reserve requirement ratio for incoming foreign funds parked at demand deposit accounts. “This will increase currency speculators’ costs and let them know that the government of Taiwan is keeping a close eye on their moves,” the banking chief said.
In related news, despite volatile movement in the past week resulting from heavy attack by international hot money, the New Taiwan dollar managed to close at NT$30.217 against the U.S. dollar Dec. 30 following the central bank’s intervention. (THN)
Write to Meg Chang at meg.chang@mail.gio.gov.tw