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Economic Daily News: Can central bank save Taiwan's economy?

Economic Daily News: Can central bank save Taiwan's economy?

Last Friday, the Directorate General of Budget, Accounting and Statistics lowered its forecast for Taiwan's 2015 economic growth to 1.56 percent, less than half of its earlier projection of 3.28 percent.
According to Cabinet spokesman Sun Lih-chyun , in the short run, the central bank will flexibly adjust the exchange rate of the Taiwan dollar and ease credit control in the domestic housing market in a bid to boost the economy. In terms of mid- and long-term policies, the government will promote industrial upgrades and the "Productivity 4.0" project, he said.
It seems the Cabinet is placing the responsibility for rescuing the GDP mainly on the central bank.
Many people believe that devaluing the Taiwan dollar to rescue exports is the fastest and most effective method. However, given that Taiwan is highly dependent on imported commodities such as energy and food, currency depreciation will definitely affect import prices, which would be unfavorable to income distribution and consumers.
Recently, the central bank has adopted a defensive devaluation strategy in reaction to the global currency war. As of last Friday, the Chinese yuan had fallen 3 percent against the U.S. dollar, while the Taiwan dollar had decreased 1.88 percent, a bigger drop than the 0.92 percent decline of the South Korean currency and the 1.3 percent of Singapore's.
The Taiwan dollar finished at NT$32.368 against the U.S. dollar last Friday, close to the average of NT$33.049 recorded during the 2009 global financial crisis. It means that there is not much room for further devaluation of the Taiwan dollar.
While it is difficult to boost exports in the short term, increasing domestic demand would probably be a more feasible way to stabilize the country's economy. However, traditional monetary policies such as lowering interest rates and reserve rates tend to have very limited effects in terms of spurring consumption and investment.
Obviously, the central bank does not have sufficient ability or policy tools to handle the responsibility of stabilizing the economy. Unless more aggressive and effective short-term steps are taken to stimulate domestic and external demand, Taiwan's economy will most likely sink into recession. The government should think carefully about allocating responsibility and decide what to do next. (Editorial abstract -- Aug. 17, 2015) (By Y.F. Low)


Updated : 2021-09-17 13:15 GMT+08:00