A subdued growth outlook, muted inflation and weak external demand are likely to prompt the central bank to extend its accommodative monetary policy and keep the rediscount rate unchanged at 1.375 percent next week, Australia and New Zealand Banking Group Ltd (ANZ) said yesterday.
The board of the nation’s top monetary policymaker is due to meet on Thursday to review policy rates. The central bank has stayed put for the past 10 quarters, citing negative output gaps and mild inflation.
The US-China trade conflict and the downside risks it poses to the Taiwanese economy would keep local policymakers concerned, ANZ said in a note.
“We expect the policy rate to hold steady through this year, barring an unexpected hawkish outlook by the US Federal Reserve or a sharp jump in domestic inflation,” ANZ said.
Taiwan’s trade and growth outlook is heavily influenced by the external environment, with exports equal to 70 percent of GDP growth, the banking group said.
Given the continued uncertainty surrounding the trade spat between China and the US, ANZ said it grows cautious regarding Taiwan’s export outlook.
Furthermore, the plateauing of smartphone sales poses another key challenge, it said.
Exports shaved 1.4 percentage points from Taiwan’s GDP growth in the final quarter of last year, primarily weighed by the downturn in demand for electronics parts used in smartphones and for cryptocurrency mining.
Taiwan is home to the world’s largest chipmakers, chip designers, and suppliers of camera lenses, touchpanels and casings. Exports have contracted for the past four months — the slow season for technology products.
On the domestic front, inflation momentum has softened, with the headline consumer price index falling into negative territory in December last year, ANZ said.
Transport inflation softened to a 32-month low with a 2.1 percent decline in January, while food inflation has stayed below 1 percent since November, it said, citing government data.
Against this backdrop, ANZ said a sharp rebound in inflation is not its base scenario for this year.
The central bank would therefore draw comfort from the ongoing inflation trajectory and negate any need for monetary tightening, it said.
The current juncture of benign inflation and weak growth, coupled with a protracted slowdown in global demand for electronic parts lends support to an extended pause in the benchmark rate going forward with an accommodative bias, the banking group said.
However, faster-than-expected rate hikes by the Fed or drastic increases in global commodity prices would present a case to revise the estimate, it said.
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