The central bank yesterday kept its rediscount rate unchanged at 1.375 percent for the 14th consecutive quarter, saying there is still room for the nation’s economy to improve, as inflation remains benign.
The move was in line with the stance of major central banks, which have embarked on monetary easing to cushion the impact of the US-China trade dispute, geopolitical frictions and other downside risks.
“The negative output gap, which now stands at 0.34 percent, could widen to 0.42 percent next year,” bank Governor Yang Chin-long (楊金龍) told a news conference in Taipei after a board meeting.
Photo: CNA
The output gap — the difference between actual GDP and potential GDP — has topped the list of the bank’s concerns when it sets policy rates on a quarterly basis.
An accommodative monetary stance is warranted as the global economy remains fragile, Yang said.
The economic slowdown in China — which absorbs about 40 percent of Taiwanese exports — could worsen next year, despite a tentative trade agreement with the US, Yang said.
Taiwan should continue to benefit from trade rerouting and order transfers, with the nation’s GDP forecast to rise 2.6 percent this year and 2.57 percent next year, the governor said.
Both readings represent a modest upgrade from the bank’s projection three months earlier, but are less upbeat compared with the Directorate-General of Budget, Accounting, and Statistics’ forecasts of 2.64 percent growth this year and 2.72 percent next year.
“We are less optimistic about the size of private investment,” Yang said.
The governor confirmed that the bank had repeatedly intervened in the foreign-exchange market, often at the end of the trading session, to stem the pace of appreciation of the local currency.
It is the bank’s duty to maintain stability and order in the financial market, and intervention is sometimes necessary to achieve that goal, he said.
An influx of hot money has pushed the New Taiwan dollar up 3.83 percent against the US dollar since August, the bank’s data showed.
Yang added that property transactions have regained momentum, especially for residential housing in central and southern Taiwan, as well as for land and office prices nationwide.
Several board members shared the observation and local banks are generally positive about a continued recovery, Yang said.
However, the market has not evolved to such an extent that credit control measures are merited, he said.
The bank expects consumer prices to grow a mild 0.54 percent this year and climb to 0.77 percent next year, allowing room for monetary easing.
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