Monetary Policy Must Be Long Range

Monetary Policy Must Be Long Range
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
January 7, 2011

The Central Bank's latest monetary policy has "Three Targets." It is raising interest rates 0.125 points to "target inflation." It is expanding credit control measures to "target real estate speculation." It is substantially increasing the amount of foreign capital in NT denominated savings accounts to "target foreign currency speculation." The Central Bank may be clear about its targets. It may be direct in its methods. But the NTD has recently undergone changes. The real estate market has also been affected. It is too early to judge the effectiveness of monetary policy. From a mid to long-term perspective, monetary policy will need considerably more adjustment.

The Central Bank's "Three Targets" policy appears to cover everything. But raising NTD interest rates will attract international hot money. Targeting inflation and targeting foreign currency speculation are to some extent at odds with each other. The policy involves a dilemma. For one, it imposes a 0.125 point rate hike. For another, it raises the deposit reserve rate for foreign capital in NTD accounts to 90%. As we can see, the Central Bank still sees targeting foreign currency speculation as more important than targeting inflation. Recent reports from foreign exchange markets say that George Soros has targeted the NTD. The Central Bank has good reason to be alarmed. Especially since other Asian countries are also attempting to prevent the influx of hot money. The government should openly declare war on hot money. This is consistent with the principle of Central Bank intervention in currency markets in the event of abnormal fluctuations.

Besides, much of the upward pressure on commodity prices and real estate prices comes from excess liquidity. According to statistics, in November of last year, the M2 money supply was 30.6 trillion dollars. It was 2.3 times the gross domestic product (GDP), and came close to historic highs. This demonstrates the degree of liquidity in domestic capital. But this liquidity has two sources. One. The financial tsunami and an extremely loose monetary supply. Two. The Central Bank's long term defense of exchange rates, its foreign currency purchases, and its subsequent release of NTD into the market. Therefore it must target the accelerants -- commodity prices, the tinder -- real estate prices, and the combustibles -- liquidity. If the Central Bank targets foreign currency speculation, it should be able to reduce pressure on the exchange rate. Controlling the flow from its source will also yield short-term benefits.

But defending exchange rates to keep out hot money is merely a short-term countermeasure. Currency exchange rates must reflect long-term economic growth and trade strength. Otherwise expectations of currency appreciation mean that hot money will inevitably interfere with monetary policy. Also, the longer one delays, the higher the price one must eventually pay. Liquidity has increased in recent years. Monetary policy now sits atop a landslide dam about to give way. The real attraction is the expected appreciation of hot money, and the resulting capital gains. The NTD has appreciated less than the currencies of less developed neighbors. But it has not lagged behind economically. Paradoxically, this may encourage more attacks. Therefore Central Bank monetary policy must target short-term currency speculation. But in the mid and long term, it must reduce expectations of appreciation, and inhibit asset price speculation. It must allow the market to determine the price of the NTD. and aggressively target real estate speculation. Each of these policies is necessary.

Now consider the targeting of real estate speculation. This reduces the incentive for hot money inflows. It also reduces the risk of excessive loans in the housing market. Lest we forget, one of the causes of the financial crisis was inflated U.S. housing prices. This led to the excessive expansion of credit. When real estate prices turned around, the entire financial system experienced cash flow problems. High real estate prices have long been the prime cause of public discontent. Targeting real estate speculation may calm the public, and stabilize the political situation. But the Central Bank has targeted only certain areas, special loans as a means of credit control. The domestic money supply remains too large. Therefore its policies may not be effective as hoped. It must raise interest rates in a comprehensive manner. Increased costs will reduce the speed at which funds flow into the housing market.

Targeting real estate speculation requires raising interest rates. A tightening of monetary policy is necessary for many reasons. When assessing quality, people usually resort to comparisons, They compare their level of development and economic structure with that of similar countries. They compare consumer price increases. But from a long-term perspective, a less than two per cent rate of return of capital is unlikely to promote investment in productive capacity and may limit long-term economic growth. Funds will flock the real estate and equity markets, which yield far higher returns, creating asset bubbles. Low interest rates are even more likely to lead to financial inertia, over-reliance on public investment in debt, and neglect its self-liquidating character. Therefore, getting interest rates back on track is key to the structural adjustment of domestic economic development.

The global world economy will invariably deal us wild cards. Monetary policy involves a time lag. With monetary policy one can not look only at the current numbers. One must look far ahead. Central Bank President Peng Hui-nan began raising rates in June of last year. He displayed the panache of a star CEO. But we remind Peng that while gradually raising interest rates 0.125 points may not be harmful to the health, any beneficial effects may be diluted by the time lag. It is not an adequate solution to this year's raging inflation pressures. It may even end up stillborn thanks to political and economic variables, and cause the government's carefully laid out monetary policy to fall short.

貨幣政策要短打長攻並濟
【聯合報╱社論】 2011.01.07

中央銀行最新的貨幣政策訂下「三打」目標，以升息半碼「打通膨」，以擴大針對性信用管制措施「打炒房」、以大幅提高外資新台幣活期存款準備率「打炒匯」。儘管央行目標清楚、手段直接，但觀察近日新台幣變化、房地產買賣氣氛，似乎所受影響有限。現在評斷貨幣政策的成效自是言之過早，以中長期觀點而言，貨幣政策其實還有不小的調整空間。

央行的「三打」政策看似面面俱到，但因調升新台幣利率會增加國際炒匯熱錢的誘因，「打通膨」與「打炒匯」之間也存有某些矛盾。但從這個兩難間的政策力度，一是維持零點一二五的半碼升息幅度，一是將外資在台新台幣帳戶的存準率提到九成，則可看出央行當下仍是「打炒匯」重於「打通膨」。從近期外匯市場不斷傳出炒匯巨鱷索羅斯鎖定新台幣的訊息，央行確實必須提高警覺，尤其是在其他亞洲國家也全面築堤防堵熱錢之際，台灣自應以明確的行動向熱錢宣戰；這也符合央行干預匯市非正常波動的原則。

再者，當前物價、房價上漲的壓力，有很大一部分是來自過剩的流動性；根據統計，去年十一月貨幣供給總計數M2已達卅點六兆元，是國內生產毛額（GDP）的二點三倍，逼近歷史高峰，凸顯國內游資之多。但這麼多的流動性，一是來自金融海嘯後極度寬鬆的貨幣供給，另一則是央行長期守匯買匯下所釋出的新台幣；因此，要移除助燃物價、房價的柴薪，收回流動性勢所必然。由此邏輯推斷，央行先「打炒匯」以降低守匯壓力，從源頭控制流動性，也可收短期之效。

然而，守匯抗熱錢畢竟只能是短期對策；如果一國貨幣的匯率水準長期未能反映其經濟成長實力及貿易表現，進而引發升值的預期心理，貨幣政策就會時時刻刻為熱錢所苦所擾；而且時間愈久、代價愈大，近年流動性的持續增加正是一例，反而讓貨幣政策如同坐在一個隨時可能潰堤的堰塞湖上。由於真正吸引熱錢的是升值的預期及由此產生的資產增值利益，在新台幣升值幅度落後鄰國，而經濟表現並未落後下，反而可能引來更多的攻擊；因此，央行的貨幣政策除了正面迎擊短期炒匯巨鱷外，從中長期而言，仍應由降低升值預期著手，並抑制資產價格的炒作，而放手讓市場決定新台幣價格、積極「打炒房」，都是必要之策。

再就「打炒房」而言，這不僅是為了減少熱錢流入的誘因，也是要降低目前金融體系放款過度集中房市的風險；別忘了，金融海嘯的成因之一就是美國房價非理性上漲造成信用過度擴張，以致房價反轉而下時造成整個金融體系周轉不靈。再者，高房價一直高居民怨之首，「打炒房」亦可收安定社會、穩定政局之效。然而，央行僅以針對特定區域、特定貸款做信用管制，在國內資金供給過剩下，恐難以起到預期的作用，仍須輔以升息的全面性作為，以增加成本來阻擋資金湧向房市的速度。

不只「打炒房」需要升息，從很多層面看，貨幣政策都有升息的必要。一般評估水準的高低，不少人會用相對的概念，即與經濟結構或發展程度相當的國家相比，或與物價上漲幅度相比。但是，從長期的觀點，不到百分之二的資金報酬率，既難以促進生產性投資的意願，限制長期經濟成長的能量，更會驅使資金湧向報酬率動輒以倍計的房地產、股票等市場，催生資產泡沫；同樣的，低利率更養成財政惰性，在公共投資上過度依賴舉債，而輕忽其自償性。因此，利率走回上升軌道，對國內經濟發展的結構性調整，實具有關鍵的啟動作用。

此外，由於世界經濟總有意想不到的變數，貨幣政策更有時間滯後的遞延特性，貨幣政策也不能只看眼下的數字，而需要保持充分的前瞻性。從這點而言，央行總裁彭淮南在去年六月即啟動升息循環，實已展現七A總裁的功力；但還是要提醒彭總裁，一次半碼的緩步升息，藥效溫和雖不傷身，卻也可能被時間稀釋了效果，不足以因應今年來勢洶洶的物價上漲壓力，更可能還沒有升足，就會因政治、經濟變數而中斷，讓精心布局的貨幣政策功虧一簣。