Taiwan’s central bank may keep its benchmark interest rate unchanged today on signs the export- dependent economy is recovering as the global recession abates.
Governor Perng Fai-nan and his board will leave the discount rate on 10-day loans to banks at a record-low 1.25 percent, according to all 12 economists surveyed by Bloomberg. The bank cut borrowing costs by 2.375 percentage points from September to February. Today’s decision will be announced after the bank’s quarterly meeting, which starts at 3 p.m. in Taipei.
Taiwan, like its Asian neighbours, will probably keep borrowing costs unchanged to help the island’s economy recover from its first recession since 2001. Gross domestic product shrank by 7.54 percent in the second quarter, easing from a 10.1 percent contraction in the previous three months.
“Policy makers during the last quarterly meeting reiterated they would stay with the current pro-growth monetary policy until the economy, inflation and job market return to pre-Lehman crisis levels,” said Tony Phoo, a Taipei-based economist at Standard Chartered Bank Plc.
Japan’s central bank on September 17 maintained its benchmark overnight lending rate at 0.1 percent, while the Bank of Korea on September 10 kept its key rate unchanged for a seventh month at an all-time low of 2 percent.
Rate cuts by the Central Bank of the Republic of China (Taiwan) coupled with the government’s planned stimulus spending of NT$858.5 billion ($27 billion) over four years have helped boost the recovery. President Ma Ying-jeou’s administration handed out NT$82.9 billion in shopping vouchers in January, which the statistics bureau says added 0.66 percentage point to growth.
Oil, Food Prices
Economists including Phoo and Barclays Capital’s Wai Ho Leong say the central bank is unlikely to raise rates this year as there isn’t a risk of inflation.
“Even as deflationary risks subside with higher oil and food prices, the central bank may be inclined to remain on hold, given the amount of slack in the economy,” Leong at Barclays said in a September 22 report. He said no rate increases are likely before the second quarter of 2010.
Taiwan’s stock index has climbed 61 percent this year on optimism overseas demand for the island’s electronics products will strengthen and boost shipments. Export orders, a gauge of future shipments, fell 11.96 percent in August, the 11th monthly decline, as weaker demand from the US and Europe offset improved sales to China.
The Taiex index rose 1.2 percent in Taipei to close at 7,376.76. The local dollar advanced 0.1 percent to NT$32.369 versus the US dollar as of 4 p.m. local time, according to Taipei Forex Inc. It earlier touched NT$32.315, the highest level since June 2.
The Asian Development Bank on September 22 raised its economic growth forecast for the region on strengthening expansions in China, India and Indonesia, and said it’s too early for governments to withdraw stimulus policies.
Policy makers globally remain on guard about the world economy. Federal Reserve Chair Ben S. Bernanke on September 16 said US growth may not be strong enough to quickly reduce the unemployment rate.
Taiwan’s central bank last cut rates on February 18 after a report showed the economy shrank 8.36 percent in the fourth quarter. The contraction continued in the first quarter, when GDP tumbled by the most since official records began in 1952 as exports dropped.
Exports, equivalent to 70 percent of Taiwan’s GDP, are starting to improve as China implements a 4 trillion yuan ($586 billion) stimulus package.
Other data indicate the island’s economic recovery is still fragile. The jobless rate rose to a record 6.07 percent in August, and consumer prices increased at a slower pace in the same month as food costs rose after crop damage caused by the island’s deadliest typhoon in half a century.