Taiwan Says Monetary Policy Has Tightened in 2014 as Rates Held

Taiwan’s central bank said today its monetary policy has turned neutral from “adequately loose” after it held the benchmark interest rate, signaling a shift in stance to tackle rising prices.

The territory’s monetary conditions have tightened this year compared with 2013, Governor Perng Fai-nan said at a briefing after the authority’s quarterly board meeting today. The central bank had described its policy as “adequately loose” for the past four quarters. Taiwan also held its discount rate on 10-day loans at 1.875 percent, a decision forecast by all 23 economists surveyed by Bloomberg News.

“The central bank has absorbed more liquidity this year and banks’ excess reserves are lower than last year’s,” Perng said in response to reporters’ questions. “The current monetary policy is tighter than 2013.”

Taiwan boosted its monthly issuance of two-year certificates of deposit to NT$20 billion ($660 million) last month, compared with the NT$10 billion it had been offering since August 2013, absorbing more funds as it tightened policy. The banking system’s excess reserves fell to NT$24.2 billion in August, compared with NT$32 billion at the end of 2013. The island’s inflation has quickened in the last three months as growth also accelerated last quarter.

“What’s different from last time is that Perng has indicated a direction for interest rates, though he didn’t hint at the timing,” said Cindy Yu, a Taipei-based economist at Fubon Commercial Bank. “The central bank has used certificate of deposit sales and open-market operations to gradually tighten monetary conditions.”

The benchmark 10-year sovereign bond yield has risen 13 basis points this quarter to 1.71 percent today.

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