The central bank is likely to hold its policy rates at its quarterly board meeting tomorrow as the US-China trade dispute escalates and hurts local technology companies in China’s electronics supply chain, Australia and New Zealand Banking Group (ANZ) said yesterday.
“We expect the policy discount rate to remain unchanged at 1.375 percent through this year as the central bank is likely to reaffirm its accommodative stance and demonstrate willingness to support the economy, if growth falters,” ANZ economist Bansi Madhavani said in a report.
Taiwan is home to the world’s largest suppliers of chips, camera lenses, touch panels and other components used in smartphones, laptops and other devices by global technology brands, including Huawei Technologies Co (華為).
US-China trade tensions are escalating into a technology dispute, with the export-dependent Taiwanese economy suffering collateral damage, Madhavani said.
Taiwan’s exports contracted 4.2 percent in the first five months of the year, with most leading product categories reporting business declines except the information and communication technology (ICT) segment, ANZ said.
The hefty increase in ICT exports stem from local firms fleeing China rather than a boost in global demand, the government has said.
The ongoing trade dispute could further dampen demand for exports and pose a key risk to GDP growth for the entire year, Madhavani said.
The nation’s economy grew at a mild 1.7 percent in the first quarter, driven by domestic demand, while exports proved a drag, she said.
Consumer prices have remained in check, with an average growth of 0.51 percent from January to last month, and are set to stay below 1 percent for the rest of the year, she added.
Global commodity prices have largely been trading within recent ranges, keeping a check on inflation in the transport sector, ANZ said, adding that food inflation has also been stable.
“We believe inflation will remain low, giving the central bank room to stay on hold,” Madhavani said.
The central bank has kept its rediscount rate steady for the past 11 quarters to help stimulate growth.
In March, it trimmed its forecast for GDP growth this year from 2.33 percent to 2.13 percent and could adjust it again to reflect the latest economic twists at home and abroad.
The Directorate-General of Budget, Accounting and Statistics on May 24 cut its growth forecast from 2.27 percent to 2.19 percent after exports fared weaker than expected.
A lack of clarity on the global economy and a protracted slowdown in the electronics sector are serious challenges for policymakers, ANZ said.
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