Taiwan's central bank kept its key rate at a record low of 1.25 percent on Thursday and cemented expectations it would stay on hold well into 2010 by noting a lack of inflationary pressure and moderate pace of growth. Central Bank Governor Perng Fai-nan told a news conference that the central bank was maintaining current loose monetary policy, while monitoring domestic and global economic conditions and closely watching changes in asset prices.
"Our board members think we should maintain the current loose monetary policy given the moderate pace of domestic economic growth and there is no inflationary pressure," Perng said. Analysts said the remarks backed the prevailing view that rates would stay at a record low until some time next year, possibly until the second quarter.
"The mild inflation outlook should give the central bank some elbow room to keep policy easy and we suspect any tightening move will only be delivered when the economic recovery finds solid footing," said Joanna Tan, economist at forecast in Singapore. "We are looking for CBC (central bank) to hold the benchmark interest rate unchanged into the second quarter next year and probably move into the tightening mode in June."
While keeping rates very low a long time raises the risk of an asset bubble, Cheng Cheng-mount, economist at Citigroup in Taipei, said the monetary authorities would first look for other ways of cooling markets before considering a rate rise. "The central bank will have to take on other measures to control the inflow of funds, such as telling speculators not to do it, or something similar to its recent ban on foreign funds in time deposits."
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