Taiwan’s Largest Financial Group ‘Looking Forward’ to Fed Rate Hikes
(Bloomberg) -- After a year of robust economic growth and corporate revenue in Taiwan, the head of the island’s largest financial group is now anticipating that a string of interest rate increases from the U.S. Federal Reserve will stoke profits further after a record year.
While liquidity measures from central banks boosted earnings for most financial companies last year, it now makes sense for policy makers to gradually increase borrowing costs, Cathay Financial Holding Co. President Lee Chang-ken said in an interview in Taipei Wednesday.
“I really like inflation and I’m really looking forward to the Fed raising rates,” Lee said. “If the Fed raises rates eight times and two percentage points over the next three years, we’ll be living the good life.”
Lee’s comments come after Cathay Financial, Taiwan’s largest financial group by assets as of September last year, reported a surge in preliminary net income to a record NT$140.6 billion ($5.1 billion) in 2021, an 85% increase over the previous year. Its life insurance and banking units also saw profits rise to new highs, fueled by Taiwan’s strong economic growth and financial markets, the company said in a statement Monday.
Higher rates would benefit the company’s new investments as well as its insurance division, Sophia Cheng, the firm’s chief investment officer said.
Surging global demand for Taiwan’s technology products propelled corporate sales to a record high in 2021. The combined revenue of Taiwan’s listed companies rose 15.2% to $1.4 trillion last year, according to a statement from the Taiwan Stock Exchange Tuesday, which helped drive the benchmark Taiex index to record highs.
Fed Chair Jerome Powell sought to reassure investors in comments to the Senate Banking Committee Tuesday that the authority could bring down four-decade high inflation in the U.S. without damaging the economy.
U.S. consumer prices climbed 7% in 2021, the fastest 12-month gain since 1982, according to Labor Department data released Wednesday. This bolstered expectations that the Fed will begin raising interest rates in March, a sharp policy adjustment from the timeline projected just a few months ago.
Taiwan has also been contending with its highest consumer prices in years, testing the limits of the central bank’s inflation targets. Prices have hovered above 2% for five straight months, peaking in November at their highest level since 2013.
But Lee said he doesn’t think Taiwan’s central bank will raise borrowing costs as much as the Fed as policy makers in Taipei didn’t expand liquidity as aggressively as their counterparts in Washington DC.
Taiwan’s central bank intervened in the currency market late last year to stem a gain in its currency amid booming exports. Policy makers kept interest rates at a record low of 1.125% last month but said they would raise borrowing costs in 2022 after the U.S. Fed signaled a hawkish shift.
©2022 Bloomberg L.P.