UPDATE 1-Taiwan keeps policy rate steady, raises GDP growth forecast on better export outlook

20-Sep-2019 Intellasia | Reuters | 6:02 AM Print This Post

Taiwan’s central bank left its policy rate unchanged on Thursday, as expected, and raised its 2019 growth forecast amid signs the island’s export outlook may be slowly improving despite the escalating US-China trade war.

Meeting hours after the US Federal Reserve lowered interest rates, Taiwan’s central bank kept its benchmark discount rate at 1.375 percent, where it has stood since June 2016.

Central Bank Governor Yang Chin-long attributed the stronger-than-expected growth to uptick in exports, which he said was boosted by “orders shifted” to Taiwan from China as manufacturers tried to get around trade tariffs.

“Taiwan’s exports significantly increased and their growth this year will be better than other countries in Asia,” Yang told a news conference following the policy review in Taipei.

“Demand for semiconductor goods is on the rise, which drives growth for related products in the supply chain,” Yang said, referring to micro-chip gadgets which are vital for export-reliant Taiwan.

He added that the rate decision was unanimous and it would continue with its “appropriate accommodative” monetary policy to support the economy, which the central bank chief said will be mainly boosted by domestic demand.

All fifteen economists in a Reuters poll had expected Taiwan’s central bank would leave the rate unchanged.

Like other trade-reliant Asian economies, Taiwan has been hurt by slowing global demand, particularly for consumer electronics, and the prolonged trade dispute between its two largest trading partners, which has disrupted supply chains.

But export orders for July fell less than expected as retailers began stocking up on electronic gadgets ahead of the peak end of the year shopping season, and actual exports unexpectedly returned to growth in August.

Taiwan’s hi-tech factories are major suppliers for global tech heavyweights such as Apple Inc and Qualcomm.

Last month, Taiwan’s government bucked a global trend of growth downgrades and raised its 2019 forecast, saying more companies were moving production to the island from China to avoid higher tariffs as the trade war dragged on.

The central bank raised its full-year forecast on Thursday to 2.4 percent percent from 2.06 percent estimated in June. It also issued its first forecast for 2020, seeing growth of 2.34 percent

Yang said the prolonged Sino-US trade frictions have had relatively small impact on the island compared other economies in the region partly thanks to the supply chain disruptions, which had driven more business towards Taiwan.


Some analysts have cautioned, however, that recent signs of export improvement are due largely to the release of new smartphone models such as Apple’s iPhone11, which may provide only a temporary boost to orders.

They said the central bank was in no rush to adjust rates in the coming quarters due to lingering growth uncertainties.

Gareth Leather, economist from Capital Economics, said Taiwan’s central bank is likely to hold the rate “until at least the end of next year.”

“The economy is holding up much better than other parts of the region…while interest rates are likely to remain low for some time yet, rate cuts are unlikely,” Leather said.

In a note before Thursday’s decision, ANZ economist Bansi Madhavani said the central bank could keep rates steady even longer, through to 2021.

“We believe Taiwan will keep policy rates on hold, bucking the trend of easing monetary policy in Asia. Soft inflation momentum, stable labour market and tepid demand conditions support the CBC’s accommodative stance,” Madhavani said.

The central bank said it expects 2019 core inflation to be 0.56 percent, down from 0.76 percent forecast in June, adding that the outlook for inflation remained stable.



Category: Taiwan

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