Thu, Dec 11, 2014 page13

• Central bank might increase key rates in second half of next year: analysts

  • By Amy Su / Staff reporter
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  The central bank might start raising its policy rates beginning in the second half of next year, provided the US Federal Reserve hikes its policy rates as expected in July next year at the earliest, SinoPac Financial Holding Co (永豐金控) and Standard Chartered Bank said yesterday.

  “Taiwan’s [policy] rates would definitely be adjusted upward after the US central bank begins its rate-hiking cycle,” SinoPac Financial chief economist Jack Huang (黃蔭基) told a press conference.

  The mild economic expansion and improving employment situation in the US would lead the Fed to raise its rates by 0.25 percentage points in July, Huang said.

  Records show that Taiwan’s central bank has always followed the US in interest rate adjustments and the trend has no reason to end next year, Huang said.

  Government strategies to cool the housing market and curb speculative property deals might also be important factors encouraging the bank to begin rate normalization next year, he added.

  Huang said the US might further increase demand for Taiwanese products, bolstering exports and GDP growth next year.

  SinoPac Financial forecast Taiwan’s economy to grow by 3.61 percent next year, while expecting the benchmark TAIEX to fluctuate between 8,500 and 9,800 points and peak in the fourth quarter next year, driven mainly by the 2016 presidential election.

  Taipei-based Standard Chartered Bank senior economist Tony Phoo (符銘財) shared Huang’s assessment.

  The British banking group maintained a sanguine outlook for the economy next year, forecasting a 4.3 percent year-on-year GDP growth.

  However, the nation’s exports could showed a mixed scenario in different industries next year, Phoo said.

  “Electronics shipments will remain robust on strong demand from the US, but exports of machine tools and petrochemical products might be sluggish due to the impact of the impending free-trade agreement between China and South Korea,” Phoo said at a separate news conference.

  Annual inflation might slow to 0.8 percent next year on weak energy prices, so the central bank would have no urgent need to raise its interest rates, Phoo said, adding that the bank might consider launching a rate-hike cycle in September quarter next year — by 0.125 percentage points each quarter — to help normalize longstanding negative interest rates.

  Meanwhile, Bank of America Merrill Lynch expects Taiwan’s GDP growth to edge up slightly to 3.5 percent next year, compared with the estimated 3.4 percent for this year, due to a lack of further trade liberalization and the impact of a gloomy global economy.

  “Our 2015 forecast is lower than Taiwan’s long-term growth forecast of about 4 percent, suggesting recovery next year will likely remain moderate and below trends,” Hong Kong-based Bank of America Merrill Lynch economist Marcella Chow (周奐彤) wrote in a note to clients yesterday.

  “We see slim chances of further trade liberalization in 2015 as Taiwan enters the election cycle, especially given the ruling party’s low popularity rating,” Chow said.

  In the run-up to the domestic presidential election, the ruling and opposition parties will likely once again be locked in “intractable politicking” for about six months before the vote, making unpopular policies less likely to be passed or initiated during the campaign, Chow said.

  Further, China’s structural economic slowdown and the re-emergence of European worries will likely persist into next year, weighing on export growth for Taiwan next year, she said.

  Additional reporting by CNA
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