The central bank yesterday kept the rediscount rate unchanged at 1.375 percent for the seventh consecutive quarter because of concern that GDP growth might take a hit from the brewing trade war between the US and China.
“The economy might slow a bit this year, while inflationary pressures remain benign, meriting an extended accommodative policy stance,” bank Governor Yang Chin-long (楊金龍) said after hosting a board meeting for the first time since taking the helm last month.
Exports and imports, which totaled 1.45 times GDP last year, are susceptible to changes in the global economy, Yang said, adding that uncertainty linked to US President Donald Trump’s trade policies poses the biggest challenge during his term in office.
Local electronic parts suppliers in particular would bear the brunt of unfavorable trade terms, which could raise production costs and dampen trade volume around the world, he said.
Washington is threatening to impose punitive tariffs on Chinese goods if Beijing fails to cut its trade deficit by US$100 billion, while Beijing has promised retaliation.
Global trade barriers are an ominous threat to Taiwan’s economy due to its heavy exposure to the global technology supply chain, Yang said.
When US imports drop by one unit, output in the Asian supply chain declines by 2.6 units, a central bank report showed.
Taiwan has deeper exposure to the global technology supply chain than South Korea, Hong Kong, Singapore and Vietnam, with the potential toll on industrial output equivalent to 0.8 percent of GDP, the report said, adding that the ratio would rise to 1.8 percent if China retaliates.
Washington’s tariff hikes on steel and aluminum imports have already had a negative effect on local exporters, since the US is the largest buyer of steel from Taiwan and the sixth-largest buyer of the nation’s aluminum, the report said.
Yang said he would stand by the “dynamic stability” approach he inherited from his predecessor, Perng Fai-nan (彭淮南), and allow the market to decide the local currency’s value.
“There is no such thing as the so-called ‘Yang defense,’” he said.
Companies should develop resilience strategies, because the bank will not intervene unless it spots excessive, irregular activity, he added.
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