Taiwan’s central bank lowered its overnight interbank lending rate twice on Friday, sending bond prices sharply higher as the move increased expectations of lower interest rates later this year given weakness in the domestic economy.
The cuts, which are the first since May 11, come after the central bank left policy rates unchanged at its last meeting in June due to global uncertainties, although other central banks’ decisions to lower interest rates in recent weeks could prompt Taiwan to follow suit to stimulate economic growth.
The Central Bank of the Republic of China (Taiwan) cut its overnight interbank lending rate to 0.480 percent Friday afternoon, after cutting the rate to 0.504 percent from 0.506 percent earlier Friday, a central bank official told Dow Jones Newswires.
“We made the change based on market conditions, after considering the overall economic and financial situation,” said the official, who declined to be named.
The official said the central bank has no plan to cut the overnight lending rate further today, adding it was rare to cut the rate twice in one day.
The yield of 10-year government bonds–the most heavily traded paper–dropped sharply in heavy trading to 1.1360 percent Friday afternoon from 1.1754 percent late Thursday. The yield of five-year government bonds also plunged, to 0.8550 percent from 0.9225%, as market participants said they expect monetary easing later this year.
A Taipei-based bond trader said that “some investors expect the central bank to cut policy interest rates as soon as the third quarter.”
Another trader, though, said the central bank may also continue to cut the overnight lending rate instead of taking a bold move in lowering policy interest rates. “The central bank may not want to cut its policy interest rates for now as it wants to cool the housing market, while inflationary pressure also remains.”
Some traders also said news that the central bank may consider holding board meetings when necessary also fueled expectations for lower interest rates later this year.
A central bank official told Dow Jones Newswires on Thursday that the bank could hold additional board meetings to make policy changes as needed, instead of waiting until its regular quarterly meetings. The official also said the central bank is closely monitoring the global economic and financial situation.
At the central bank’s last quarterly policy meeting on June 21, the central bank left its benchmark interest rates unchanged as expected, citing the uncertain global outlook and inflation.
The central bank’s benchmark discount rate has stayed unchanged at 1.875 percent since its quarterly meeting in September 2011.