Taiwan’s economy this year is expected to improve from last year, but it is still unlikely that the central bank will kick off an interest rate hike cycle, analysts said on Saturday.
Despite rising global demand for high-tech gadgets, which is paving the path for a recovery of the local electronics sector — the nation’s export backbone — the sector’s growth cannot be perceived as a rebound in the broader economy, they said.
Gordon Sun (孫明德), director of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research (台經院), said that the central bank still needs some time to observe the pace of economic recovery before reaching a decision on interest rates.
He and other analysts made the comments in response to a Wall Street Journal report on Thursday that said Taiwan may join the world’s rate hike club with the central bank likely to be forced to tighten monetary policy to prevent the economy from overheating.
“With the recovery solidifying in the West, and Taiwan still dominant in manufacturing semiconductors and other electronics, the island’s economy is positioned for its fastest growth in three years,” the newspaper said.
However, Sun said the semiconductor industry, mentioned by the Wall Street Journal report, accounts for one-third of Taiwan’s manufacturing sector’s total output, while the sector makes up only 25 percent of the nation’s industrial output.
That means how well the electronics sector performs is not equal to how well the entire Taiwanese economy fares, he said.
He added that growth in other industrial sectors, such as petrochemical and machinery, remained slow, and these sectors need time before they can stage a rebound.
Liang Kuo-yuan (梁國源), president of the Yuanta-Polaris Research Institute (元大寶華綜合經濟研究院), was also cautious about Taiwan’s economic growth prospects this year.
He said the local electronics sector is faced with fiercer-than-ever competition from China, so even if global demand is on the rise, Taiwan is likely to see higher hurdles to grasp a larger share in the global market.
In its last policymaking meeting held in late December last year, the central bank left its key interest rates unchanged.
It was the 10th consecutive quarter for the bank to leave interest rates intact in order to boost the nation’s economy.
The Directorate-General of Budget, Accounting and Statistics (DGBAS) last week upgraded its forecast on the nation’s economic expansion this year to 2.82 percent from an earlier estimate of a 2.59 percent increase after the economy grew 2.11 percent last year.
Sources from the local financial sector said the central bank is unlikely to raise interest rates until next year as Taiwan is encountering little inflationary pressure to lower liquidity levels.
According to the DGBAS, the nation’s inflation rate could rise to just 1.07 percent this year, far below the 2 percent that the central bank has set as a catalyst to raise interest rates.
The central bank declined to comment on the Wall Street Journal, simply saying that its monetary policy is decided by a quarterly meeting of its directors and supervisors.
The next meeting is scheduled for late next month.