Taiwan’s exporters, not borrowers, are seen being the main beneficiaries if the central bank decides to cut interest rates at a quarterly review this week.
Money-market rates and bond yields are already near record lows in the run-up to tomorrow’s decision, leaving little scope for further declines, an Australia & New Zealand Banking Group Ltd (ANZ) economist said.
Instead, what a rate cut — forecast by eight of 20 economists in a Bloomberg survey — is likely to achieve is a weaker currency, which might help lift exports that slumped for a seventh month last month, according to BNP Paribas SA.
“If you send an overt signal to markets by cutting the discount rate then I think that would also have the side benefit of weakening the currency,” Hong Kong-based BNP economist Mark Walton said. “The currency is probably the key variable that is going to make the difference for Taiwan’s exporters, much more so than rates.”
Exporters have had a rough ride this year as they grapple with a downturn in the key electronics sector and weaker global demand, especially from their top destination China.
The nation’s monetary authority has refrained from joining a global wave of easing that has seen more than 20 central banks cut rates this year. That has contributed to the New Taiwan dollar being one of the most resilient emerging-market currencies this year, weighing on overseas shipments that make up about two-thirds of the economy.
Even as consumer prices that have fallen each month this year and economic growth that slowed to a three-year low last quarter add to the case for easing, ANZ said it does not expect a cut in the benchmark discount rate given ample liquidity in the banking system.
The nation took a quieter step toward monetary easing on Aug. 11, when it reduced the interest rate on overnight certificates of deposit for the first time since 2012.
The move, which followed China’s shock devaluation of the yuan, saw the NT dollar slump 2.2 percent in two days and contributed to the currency’s 3.4 percent slide last month, the steepest since 2011. It has risen nearly 0.5 percent this month and yesterday closed at NT$32.971 against the greenback in Taipei trading.
“As long as they maintain liquidity in the banking system, they will have achieved their objective, so lowering the discount rate is not that meaningful,” Hong Kong-based ANZ economist Raymond Yeung (楊宇霆) said.
The central bank has kept the rate on one-day certificates at 0.32 percent since Aug. 25, according to people familiar with the matter. The instruments are sold by the central bank daily to adjust cash supply and the rates and volumes are not released publicly.
The nation auctioned one and two-year certificates of deposit at record low rates this month. Local 10-year sovereign bonds yield 1.2 percent, the lowest in Asia, excluding Japan.
Economic growth slowed to 0.52 percent in the April-to-June quarter, from 3.84 percent in the first three months of the year. The central bank has held the key rate at 1.875 percent since 2011.
Funding demand is not strong amid a weak economic recovery and monetary conditions are loose enough to support funding needs, the central bank said in a report to lawmakers seen by Bloomberg on Monday. The currency’s “dynamic stability” is important to the nation’s economic development, it said.
“The central bank’s target is not interest rates — it is how the [New] Taiwan dollar moves,” Yuanta Securities Investment Consulting Co (元大投顧) economist Aidan Wang (王誠宏) said. “If Taiwan’s dollar is facing too much appreciation pressure, it may cut the policy rate.”
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