Taiwan central bank holds fire on rates, cuts growth outlook again

Economy
© Reuters. FILE PHOTO: Staff member stands beside the Taiwanese Central Bank logo in Taipei © Reuters. FILE PHOTO: Staff member stands beside the Taiwanese Central Bank logo in Taipei

By Yimou Lee and Liang-sa Loh

TAIPEI (Reuters) – Taiwan’s central bank unexpectedly left its policy rate unchanged on Thursday but further reduced its growth forecast for 2020, as the coronavirus pandemic threatens to deal a further blow to the trade-reliant economy.

Its decision to stay on hold bucked a rush by global central banks to loosen monetary settings as policymakers scramble to boost growth and financial stability due to crumbling investor sentiment.

Taiwan’s central bank left the benchmark discount rate at 1.125%, where it has stood since March when it lowered the rate to a historic low.

The median forecast of 16 economists in a Reuters poll was for the discount rate to be cut to 1%.

“The rate cut was effective and consumption will gradually pick up. We will wait for a while and see,” central bank governor Yang Chin-long told reporters, referring to the possibility of further rate cuts ahead.

The central bank cut its full-year economic growth outlook to 1.52% from 1.92% forecast in March, saying the virus outbreak could curb Taiwan’s exports, but that there were signs of economic recovery.

“Although the global economy still faces many uncertainties, the domestic economy is likely to recover mildly, supported by domestic demand,” it said in a statement.

The central bank said it expects growth in the second half to be stronger than the first half, helped by government stimulus and continuous capital investment in the semiconductor sector, but added uncertainty remained due to the coronavirus.

Yang said consumption would probably grow in the third and fourth quarters, thanks to a series of stimulus programmes expected to eventually total T$ 1 trillion ($ 33.8 billion).

He added that Taiwan’s economic recovery is likely to be “Nike-shaped”, pointing to stronger growth in the second half than the first.

Economists have referred to Nike (NYSE:)’s Swoosh logo, or sloping L shape, to describe a recovery that is steady and gradual.

However, Taiwan’s GDP forecast is still a lot more bullish than many banks, some of which, like Deutsche Bank (DE:), expect the economy to contract this year.

While Taiwan has largely shaken off the pandemic with just five active coronavirus cases, the outbreak has hurt the job market and consumption, pushing the government to roll out its stimulus package to help soften the impact.

The central bank also lowered its 2020 core inflation forecast to 0.36%, adding it expected inflation to stabilise in the second half and that deflation was unlikely.

($ 1 = 29.5990 Taiwan dollars)

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