The IMF has kept its GDP growth forecast for Taiwan unchanged at 3.8 percent this year and suggested that policymakers adopt reforms to support demand rebalancing and relieve bottlenecks impeding growth.
The international body also urged central banks in the Asia-Pacific region not to respond to the decline in headline inflation from the drop in oil prices, but advised them to intervene in foreign exchange markets in the case of overshooting to maintain financial stability.
The projection suggests that Taiwan will outperform other advanced Asian nations’ average growth rates of 2.2 percent, but lag behind emerging and developing counterparts that might expand by 6.6 percent, according to the latest forecast released on Tuesday.
As a whole, Asia’s growth is expected to hold steady at 5.6 percent this year.
The sharp fall in world commodity prices will support GDP growth across the region, as most nations, including Taiwan, are net oil importers, the report said.
The drop in oil prices is expected to generate a windfall to purchasing power of about 1.7 percent of regional GDP this year, providing support to domestic spending and raising current accounts, the report said.
Taiwan, which imports more than 90 percent of its oil for consumption, might see its consumer price index (CPI) grow by a mild 0.7 percent this year, while unemployment remains low at 4 percent, the IMF forecast.
Taiwan’s CPI registered a contraction of 0.59 percent in the first quarter from the same period last year, government data showed.
Core CPI, which excludes volatile items such as energy, and fruit and vegetable prices, stood at 0.96 percent last quarter, suggesting healthy consumer spending.
In its semiannual World Economic Outlook, the IMF advised against interest rate cuts to respond to the decline in headline inflation, unless the effect of lower oil prices is transmitted to core inflation or inflation expectations.
Policymakers in South Korea, Thailand, Australia and Japan, where output gaps are negative, might need to take action to prevent a persistent decline in inflation expectations, the IMF said.
Exchange rates should be permitted to respond to shifts in balance of payment flows due to changes in commodity prices and capital flows, the IMF said.
However, foreign exchange intervention should remain in the toolkit used to address disorderly market conditions, especially in cases where overshooting threatens financial stability, the report said.
Efforts might further require proactive use of macro-prudential policies to tame the effects of the financial cycle on asset prices, credit and aggregate demand, it said.
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