The US Federal Reserve’s meeting today might help lift uncertainty from global financial markets, but its decision might not have a great effect on Taiwan amid increased cross-strait economic ties, economists said yesterday.
All eyes are on the US central bank, which is to decide today whether to raise interest rates for the first time since December 2008 or keep them unchanged at between zero and 0.25 percent.
“The decision will create a big splash in global financial markets, as funds might flow from emerging markets to the US in pursuit of higher returns,” KGI Securities Co (凱基證券) economist Andrew Tsai (蔡耀德) said by telephone.
Cautious sentiment has kept turnover light in the local stock market and for most other investment tools.
KGI expects the Fed to either raise interest rates by 25 basis points this week, accompanied by an assurance of no more adjustments for the rest of this year, or leave the rates intact, but with plans for a modest hike in December.
“Either way, the Fed will issue statements that should help calm market unease,” Tsai said.
However, the US central bank is losing its leadership position in guiding other central banks as is the case with Europe, Japan and China, where policymakers have adopted monetary easing and will continue to do so to support their own economic growth, Tsai said.
Taiwan’s central bank, which used to take its cues from the Fed in setting policy rates, would not jump on a tightening bandwagon when its board members meet next week, Tsai said.
The nation cannot afford monetary tightening given its poor economic showing and increasing deflationary pressure, he said.
Exports, which account for more than 60 percent of GDP, have contracted by double-digit percentages over the past three months, a trend that might continue for the rest of the year, statistics officials have said.
Taiwan has become more economically dependent on China — rather than the US — over recent years, making it more important to heed Beijing’s economic forecasts, Tsai said.
China accounts for about 30 percent of export demand, while the US makes up about 28 percent, he said.
State-run First Commercial Bank (第一銀行) said the chances of seeing a rate cut by the central bank next week are greater than seeing the “status quo.”
“While the central bank will closely monitor the Fed’s statements, it will embark on monetary easing to prop up the economy,” a First Bank economic researcher said on condition of anonymity.
The central bank has increasingly shaped its monetary policy in tune with its Chinese peers as evidenced by the New Taiwan dollar’s recent depreciation in step with the yuan, the researcher said.
The monetary policymaker last month recommended an easing environment to cope with the global slowdown and might take steps itself to encourage business activity, First Bank said.
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