Taiwan’s central bank is in no rush to cut interest rates as its South Korean peer did earlier this month, even though both governments have introduced stimulus packages to prop up their economies, Credit Suisse AG said.
Whether the central bank is in favor of lower interest rates will be contingent upon a further worsening of the local economy and a shift into a more dovish stance by its board members, Christiaan Tuntono, a Hong Kong-based economist at Credit Suisse, said in a note yesterday.
Tuntono’s remarks came after the Cabinet unveiled its economic stimulus package yesterday. His view echoed HSBC Greater China economist Donna Kwok (郭浩庄), who said on Friday that the central bank is unlikely to cut rates any time soon, with monetary conditions still loose.
“There are several points that make Taiwan different from [South] Korea,” Tuntono said.
He added that the nation’s policy rate is already lower than South Korea’s and Taiwan’s growth is not bad enough to force the central bank to cut rates now.
On May 7, South Korea’s parliament approved 17.3 trillion won (US$15.4 billion) of stimulus spending through an extra budget, two days before its central bank announced it was cutting the benchmark interest rate by a quarter percentage point to 2.5 percent to boost the country’s export-reliant economy.
At that time, Bank of Korea Governor Kim Choong-soo was quoted by The Associated Press as saying that the interest rate cut, the bank’s first reduction in seven months, was intended to “maximize the effect of the extra budget.”
Tuntono said Taiwan’s central bank might be under more pressure to ease its monetary policy now than before, but the chance for a rate cut this year was still low.
That is because Taiwan’s policy rate of 1.875 percent is already lower than South Korea’s 2.5 percent, he said.
Taiwan’s GDP is forecast to expand 2.4 percent this year, after growth of 1.25 percent last year, and the government expects the economy to pick up pace in the second half of this year.
“We do not believe the pressure on the central bank to cut the interest rate is strong enough now, unless there are more signs indicating that growth [this year] will be even worse than last year,” Tuntono said.
Moreover, policymakers in Taiwan are still wary about rising property prices and have plans ready to ward off speculative investors from entering the local property market.
“This makes easing the monetary policy stance difficult at this stage,” Tuntono said.