Sat, May 05, 2018 - Page 12 News List

Central bank expects 2.58% GDP rise

BOARD MEETING:The bank predicted that domestic demand will underpin GDP growth, as exports could seem less impressive due to a high comparison base

By Crystal Hsu  /  Staff reporter

The central bank expects Taiwan’s economy to grow 2.58 percent this year and has no intention of tightening monetary policy in the near future as uncertainty lingers, the minutes of its latest board meeting showed.

The growth forecast is higher than the 2.42 percent increase the Directorate-General of Budget, Accounting and Statistics projected in February, but remains less than the 2.86 percent pickup recorded last year.

At the March 23 meeting, all central bank board members agreed to keep the rediscount rate at 1.375 percent, even though the real interest rate slipped into negative territory due to a higher inflation reading, the 17-page document said.

“While the real interest rate turned negative, this was just one of the elements considered in the bank’s monetary policy deliberation,” the minutes quoted one board director as saying.

The real interest rate is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to a lender or investor.

The consumer price index increased 1.54 percent in the first quarter, which is higher than the policy rate. This means people are likely to spend more as there is no point to saving.

Recent developments showed that the domestic economy is expanding at a moderate pace: Leading indicators continued to rise, while both manufacturing and non-manufacturing firms remained positive about their business outlook, and labor market conditions are stable, with a steady downtrend in the unemployment rate and a mild increase in average wages, the minutes said.

The central bank expects domestic demand to underpin GDP growth this year when exports might appear less impressive due to the high comparison base set last year.

Demand for new technology applications and a continued global economic upturn would shore up exports of base metals, electronic components and machinery, the bank said.

However, downside risks linger, several board directors said.

Although research institutions have revised up their growth projections, the value still trails behind last year’s performance, the central bank said.

It is also important to monitor the progress and potential influence of pension reforms, one board member said.

Looking ahead, global financial stability and economic growth could be impaired by the monetary policies of major central banks, US economic and trade policies, and the spread of protectionism from the US to other countries, the minutes said.

One board director pointed out that the major risk this year is a potential trade war between the US and countries affected by its protectionist policies.

This merits an accommodating monetary policy in the absence of evident inflationary pressures, the minutes said.

The central bank expects consumer prices to grow at a benign 1.27 percent this year. Interest rate hikes would foster New Taiwan dollar appreciation, which would be unfavorable for exports, one board member said.

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