The central bank yesterday did not change its accommodative monetary policy for the fifth consecutive quarter, saying the economy remains mild and below its potential in the absence of inflationary pressures.
The move is intended to help support the nation’s export-focused economy that is expected to slow down in the coming months as low-base benefits fade away, following a 2.39 percent pickup in the first half, the bank said.
“The board decided to keep interest rates unchanged as global uncertainty might weigh on exports, while private investments slacken amid deteriorating operating conditions,” central bank Governor Perng Fai-nan (彭淮南) told a news conference after the bank’s quarterly policy meeting.
Photo: Wang Yi-sung, Taipei Times
The bank’s rediscount rate is to remain at 1.375 percent, the collateralized loan rate at 1.75 percent and the unsecured loan rate at 3.625 percent.
The bank expects GDP to grow 1.93 percent in the second half of the year, slightly higher than the 1.85 percent increase forecast by the Directorate-General of Budget, Accounting and Statistics (DGBAS) last month.
Listless private investment accounted for the slowdown, as companies have long complained about electricity, water, land, labor and talent shortages, but the government has yet to work out solutions, Perng said.
As a result, private investment in Taiwan grew a parlous 1.3 percent in the first six months. It climbed 10 percent in South Korea during the period.
In Taiwan, foreign direct investments slumped 27.4 percent in the first seven months and investment from China dropped 4.7 percent, the bank’s report showed.
By contrast, the US and China have offered regulatory waivers for foreign investors and successfully won Hon Hai Precision Industry Co (鴻海精密), Formosa Plastics Group (台塑集團) and state-owned oil refiner CPC Corp, Taiwan (台灣中油) over, Perng said.
“The magnet effect might intensify and would spell trouble for Taiwan,” he said.
Private investment used to account for 25 percent of the nation’s GDP, but the share declined to 21 percent over the past few years, Perng said.
He dismissed suggestions that the central bank strengthen the local currency to encourage industrial upgrade, saying the key lies in productivity.
“Currency appreciation might hurt industry’s competitiveness without the support of productivity enhancement,” he said.
Wage increases for government employees next year might boost domestic demand slightly, as could the Forward-looking Infrastructure Development Program, said the bank, which expects GDP to grow 2.2 percent next year, slightly lower than the 2.27 percent projection by the DGBAS.
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