The central bank is likely to keep interest rates at historical lows for now amid worries about weakening demand for electronics goods in the second half, economists said yesterday.
The bank's monetary policy has come into the limelight as the US Federal Reserve Chairman Allen Greenspan's moderately upbeat remarks last week about US's economy strengthened economists' expectations for a third straight hike in US benchmark interest rates at the Fed's Sept. 21 meeting.
The central bank is scheduled to hold a quarterly meeting on Sept. 30 on monetary policy.
"In Taiwan, the central bank should be in no hurry to follow suit by raising key interest rates at the meeting late this month in light of the easing inflation rate," said Cheng Cheng-mount (鄭貞茂), chief economist for Citibank Taiwan.
The consumer price index, a major gauge of an economy's inflation rate, fell 0.4 percent last month from July, according to the government's latest statistics. In July, the index rose 1.15 percent, a second consecutive monthly gain, to 102.8 points from June.
In addition, as the economy is expected to lose some steam in the second half due to weakening demand for electronics after a brisk first six months, we believe central bank policy makers will stand firm for a while, Cheng said.
Interest rates hit record lows after 15 cuts by the central bank since December 2000 with the discount rate, the rate for accommodations with collateral and the rate for accommodations without collateral at 1.375, 1.75 percent and 3.625 percent, respectively.
Wu Chung-shu (吳中書), a research fellow at Academia Sinica, also believes central bank officials will not make an aggressive move anytime soon amid concerns about weakening economic strength.
"As inflation risk is low, slowing industrial output in Taiwan's factories should be a top concern for central bank officials," Wu said.
Nevertheless, there is still a chance that the central bank will decide to end the three-year-long period of low interest rates by hiking rates at a slower pace than Fed does, Cheng said.
"To keep the New Taiwan dollar from depreciating drastically is the major reason behind the action," Cheng said.
Wu agreed with Cheng, saying that a 0.125-percentage point increase is a possible scenario.
The central bank does not want a steep devaluation to hurt exporters' competitiveness as South Korea maintained its overnight call rate at 3.5 percent last week, Wu said.
The move came after South Korea, the region's third-largest economy, surprisingly cut key interest rates by a quarter of a percentage point last month.
"Even so, as the Fed is moving toward constantly raising the US' key interest rates at a measured pace, it's merely a matter of time before Taiwan's monetary policymakers end their long-term low interest rate policy," Wu said.
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