Mon, Jun 19, 2017 - Page 16 News List

Central bank expected to keep key rate unchanged

Staff writer, with CNA

The central bank is likely to keep its benchmark interest rate unchanged at 1.375 percent this week for the fourth consecutive quarter, market observers said yesterday.

The central bank will likely leave rates unchanged when its board meets on Thursday because there are no clear signs of economic recovery and considerable uncertainty still exists in international financial markets, analysts said.

The US Federal Reserve on Wednesday lifted its key interest rate by a quarter of a percentage point, its third rate hike in six months, and said it would cut its balance sheet by reducing its bond and securities holdings later this year.

A local bank executive said Taiwan’s economic recovery remains sluggish, and an easy money policy is still needed to support economic growth, so the central bank is likely leave its benchmark discount rate unchanged.

While the Directorate-General of Budget, Accounting and Statistics (DGBAS) expects economic growth to exceed 2 percent this year, indicators such as the National Development Council’s composite monitoring indicator and the purchasing managers’ index have slid, raising questions about the strength of Taiwan’s recovery.

DBS Bank Ltd on Friday also said that there is little reason for the central bank to follow the Fed, as an accommodative monetary policy is still needed to support Taiwan’s economic growth.

“GDP growth appears to have slowed in the second quarter, given the weakness in trade and industrial production data in April,” the Singapore-based bank said in a note. “While the Taiwanese government has announced increased public infrastructure spending to boost domestic demand, the ratification and implementation process still takes time.”

Taiwan’s inflation pressure has eased notably compared with the previous quarter, which also reduced the need for policy tightening, DBS said.

“Food prices may rise from this month onwards as the typhoon season arrives, b ut the renewed decline in global oil prices, coupled with the strength in the New Taiwan dollar, should help to keep inflation in check,” DBS said.

Moreover, with little sign in the money market lately that the central bank has begun to withdraw liquidity, it is not expected to raise the benchmark rate soon, DBS added.

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