Uncertainties over export outlook amid rising trade tensions, moderate economic growth and benign inflation might lead the central bank to hold its policy rates steady next week, Australia and New Zealand Banking Group Ltd (ANZ) said yesterday.
The New Taiwan dollar’s divergence from an emerging-market rout also suggests that there is no urgency for the central bank to raise interest rates to help stabilize the currency, the bank said in a report.
“We stand by our view that Taiwan’s central bank might not embark on a monetary tightening cycle until the first quarter of next year, barring an unexpected jump in inflation or faster rate hikes by the US Federal Reserve,” ANZ economist Betty Wang (王蕊) said in the report.
The central bank is to review its policy rates on Thursday next week, after keeping them unchanged for the past eight quarters.
The escalating US-China trade dispute has clouded Taiwan’s export outlook, raising uncertainty on its GDP growth in the coming quarters due to its heavy reliance on global trade, Wang said.
For the time being, other factors might relieve some immediate concerns about Taiwan’s exports, she said, citing as examples the exclusion of iPhone-related components from Washington’s latest US$200 billion tariff list, local manufacturers gaining new orders from their competitors and the solid performance of traditional industries.
However, the US-China trade tensions might persist and a protracted drama would have negative effects on the operations of Taiwanese exporters over time, because many keep close business ties with both China and the US, she added.
Taiwan’s business sector might turn conservative about future investment and the central bank could refrain from policy rate hikes that would increase investment cost burdens, Wang said.
Taiwan has fared well amid recent emerging-market volatility, as the NT dollar has been relatively stable, she said.
Rising foreign exchange reserves and ample liquidity might have helped cushion external shocks and give the central bank more time to keep interest rates intact, she added.
Meanwhile, Taiwan’s GDP growth in the first half of this year was modest and stable at 3.2 percent, without signs of overheating, Wang said, adding that inflation has picked up since late last year due to rising energy prices and a decline in the local currency.
However, consumer price increases have been benign and inflation rates have remained below the central bank’s 2 percent alarm, averaging 1.64 percent for the first eight months of this year, she said, citing government statistics.
An interest rate hike now could prematurely stunt economic growth momentum, she added.
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