The central bank might consider cutting interest rates this quarter if data due on Friday next week show that GDP growth was lower than 3 percent in the first half, economists said yesterday.
The Cabinet on Wednesday instructed the National Development Council to recommend measures to boost exports, which contracted 7.1 percent in the first six months, worse than the 6.95 percent fall the statistics agency projected in May.
The central bank was not a participant in the Cabinet’s discussions, but it might decide to step in and lower interest rates to help stimulate business activity, National Central University economics professor Hsu Chih-chiang (徐之強) said by telephone.
Low borrowing costs would encourage firms to increase the scope of their operations on credit and the negative consumer price index (CPI) reading also lends support to the case for monetary easing, Hsu said.
As of last month, the inflationary gauge had declined an average of 0.65 percent, dragged down by cheaper fuel prices, the Directorate-General of Budget, Accounting and Statistics said.
The agency is due to publish second-quarter GDP data on Friday next week. The figures showed a 3.37 percent increase in the first quarter.
“Poor exports raise alarms if they are not caused by declines in the price of crude,” Hsu said.
The Ministry of Finance has predicted a continued downturn in export data this quarter due to a high base in July and August last year.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, last week gave a conservative guidance for business going forward, as inventory adjustments linger for its clients in emerging markets.
Against this backdrop, the central bank might cut interest rates by 12.5 basis points this and next quarter, HSBC Hong Kong-based economist John Zhu (朱日平) said.
The British banking group expects Taiwan’s exports to soften in coming months after export orders in May dropped 5.9 percent year-on-year — the fastest pace of decline in two years.
A strong New Taiwan dollar is adding to the challenges, with a 10 percent appreciation in its real effective exchange value this year, whereas central banks in the region have loosened their monetary policy, Zhu said.
Taiwan’s dependence on exports makes the economy susceptible to global cyclical volatility, and the government could shift the focus to domestic demand in a bid to revive the economy, Hsu said.
To that end, the government could increase investment by asking different agencies and state enterprises to upgrade their capital equipment, Zhu said.
For example, Taiwan Power Co (Taipower, 台電) could facilitate the installment of smart meters and smart grids nationwide, Hsu said.
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