Central Bank Governor Perng Fai-nan says that lowering interest rates will have only a limited impact on investment. Perng was speaking Thursday at the Legislature.
Perng said that the usual goal of lowering interest rates is to stimulate effective demand. But Perng said that Taiwan’s interest rates are already low. He also said that the most important issues for investors are the outlook for economic growth in the coming three to five years and the risks presented by uncertain variables. He said that interest rates fall behind both of these factors in terms of importance to investors.
Perng declined to comment directly on whether Taiwan should further lower interest rates.
Perng said that a number of countries have adopted non-traditional monetary policies, including negative interest rates. But he said that while negative interest rates may not have much impact on investment, they do impact consumption. He said that negative interest rates will make consumers reluctant to spend.
Perng said that negative interest rates also weaken the intermediary function of central banks. He said that while the goal of negative interest rates may be to get banks to loan money and invest, they may heighten banks’ risks instead, threatening financial stability.