The central bank is to cut its policy rate to a record low this year as prospects of an economic recovery appear bleak amid a slowdown in trade, according to ING Groep NV and Fubon Financial Holding Co (富邦金控).
ING predicts the monetary authority will double the size of reductions in the benchmark discount rate to 25 basis points, taking the rate to less than the unprecedented 1.25 percent in 2009 during the global financial crisis.
Fubon senior economist Rick Lo (羅瑋) estimated the rate would drop to 1.125 percent by year’s end after the nation lowered its economic growth forecast for the year this week.
Weak global demand and a slowdown in China, Taiwan’s biggest trading partner, has weighed on the nation’s export-led economy, which has seen GDP contract for two straight quarters.
Yields on government bonds sank to records this week as bets for further easing were boosted after the central bank relaxed funding conditions through its market operations, a move that preceded a policy rate cut in September last year.
“There’s not going to be a strong snapback from the global manufacturing slump,” ING Singapore-based head of Asia research Tim Condon wrote in a report yesterday.
“We revise our 2016 GDP growth forecast to 1 percent from 2 percent. Prior to the onset of the slump, we thought potential growth was around 2.5 percent,” Condon added.
ING forecast the benchmark rate would reach 0.625 percent by the end of this year.
The government on Wednesday reduced its GDP growth projection for this year from 2.32 percent to 1.47 percent, while lowering its inflation estimate from 0.84 percent to 0.69 percent.
The forecast for exports was lowered from 1.97 percent to minus-2.78 percent.
The yield on 10-year notes fell three basis points this week to 0.851 percent, near a record low of 0.826 percent on Monday, Taipei Exchange prices show.
The New Taiwan dollar declined 0.1 percent to NT$33.561 against the greenback, the first weekly loss in four, according to Taipei Forex Inc prices, while one-month non-deliverable forwards fell 0.9 percent from Feb. 12 to NT$33.322.
The central bank is to hold its quarterly board meeting next month.
The central bank, which has reduced the policy rate in each of the last two quarters, will lower it by 12.5 basis points to 1.5 percent at the review, according to the median estimate in a Bloomberg survey of economists.
“The economy has entirely turned off its engines,” Lo said on Wednesday.
“Not only are exports poor, domestic demand is also on the decline. With a cut also to the inflation forecast, the room for easing has expanded,” Lo added.
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