Taiwan Central Bank: Taiwan can handle early end to US stimulus

The Taiwan government has the ability to deal with a possible early phasing out of the quantitative easing (QE) measures by the United States Federal Reserve, according to report by the local central bank.

June 13, 2013

In the report that was released Friday, the central bank said although concerns have been raised over a possible move by the U.S. Fed to scale down its liquidity easing measures, Taiwan has come up with a stimulus package to boost the local economy.

Concerns over the possibility that the Fed will taper off the QE measures earlier than expected have affected the global financial markets, with many institutional investors retreating from the trading floor, prompting a spike in bond yields particularly in the U.S.

On Friday, the Dow Jones Industrial Average fell 1.36 percent due to concerns over the Fed's move, which could ripple through equity markets in Asia next week.

Currently, the Fed is buying US$85 billion worth of government bonds and mortgage-backed securities per month in a bid to keep interest rates low.

But with the job market in the U.S. showing signs of improving, investors are worrying that the Fed will end the policy soon. The Fed, meanwhile, has been sending mixed messages on the issue, which has caused an escalation of worry.

The local central bank said the domestic stimulus package unveiled by the Cabinet earlier this week aims to tackle adverse internal and external economic factors, including a possible early phasing out of the Fed's QE.

The Cabinet launched the stimulus package May 28 after the Directorate General of Budget, Accounting and Statistics cut its 2013 growth forecast for Taiwan's gross domestic product (GDP) 2013 from 3.59 percent to 2.4 percent.

The stimulus plan aims broadly to expand consumer spending, boost domestic investment, encourage innovation and new business start-ups, and revise the capital gains tax on stock sales. The local central bank said Taiwan's financial market remains stable since the country has ample foreign exchange reserves — US$405.19 billion as of the end of April — and the ability to meet its financial obligations.

In addition, the New Taiwan dollar appears relatively stable compared with other regional currencies such as the Japanese yen and the South Korean won, but domestic prices remain high, which puts a heavy financial burden on homebuyers, the bank said.

Original article posted on TaiwanTrade.com.tw