The central bank yesterday kept its policy rates unchanged, saying the economy has recovered mild growth since last quarter and the pace is expected to accelerate next quarter and beyond.
The move followed four interest rate cuts of 12.5 basis points in the past 12 months, when the nation’s export-focused economy took a hit from a slowdown with major trading partners, including China.
“The nation’s interest rates are low enough and loose monetary policy is increasingly reaching its limit,” central bank Governor Perng Fai-nan (彭淮南) told a news conference after the bank’s quarterly board meeting.
This means the rediscount rate will hold steady at 1.375 percent, the collateralized loan rate at 1.75 percent and the unsecured loan rate at 3.625 percent.
The economy is forecast to grow 1.99 percent this quarter and 2.38 percent next quarter, after managing a 0.7 percent pick up in the second quarter following three quarters of contraction, the Directorate-General of Budget, Accounting and Statistics said.
“Having left interest rates on hold today, we think [the central bank] might now leave rates on hold in the short-term,” Gareth Leather, senior Asia economist at Capital Economics in London wrote in a note.
“But given the poor growth outlook for 2017, there is still a good chance the [central bank] will resume its rate cutting cycle next year,” Leather added.
One of the longest-serving central bank governors in the region, Perng said that this term would be his last.
He is scheduled to hand over the reins in February 2018, after 20 years at the helm.
Recent data suggested a gradual recovery in Taiwan’s economy, with export orders last month increasing 8.3 percent from a year earlier for the first expansion in 17 months and industrial production expanding 7.74 percent annually in the month.
Perng said the landscape looks brighter next year compared with this year, rendering further rate cuts unnecessary.
However, he said the pace of growth is likely to remain slow amid a continued retreat in global trade and sharpening of competition.
Still, there are many policy tools for the government to spur growth if it can guide the nation’s excessive savings to public construction works, Perng said.
For example, Taiwan Taoyuan International Airport needs to be upgraded and expanded to better serve travelers, Perng said, adding that the airport tends to face problems following heavy rains and typhoons.
The government can also encourage urban renewal projects through regulatory easing to improve safety, adding that 45 percent of existing homes are 30 years and older, the governor said.
“Urban renewal projects spell huge business opportunities that can enhance private investment and living standards of residents in older buildings,” Perng said.
However, the central bank keeps credit controls on luxury homes nationwide, with the loan-to-value ratio capped at 60 percent, as their prices remain volatile, Perng said.
“The ceiling is quite loose,” he said.
Above all, the government must help solve labor disputes as frequent protests and policy instability will jeopardize efforts to boost private investment, Perng said.
Major trade groups have refused to join government-sponsored negotiations with labor unions over working hours, basic wages and other issues after the government voiced sympathy for the labor camp.
Additional reporting by Bloomberg
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