The central bank yesterday said it was keeping a close eye on global financial markets after South Korea and Indonesia caught many off-guard by cutting interest rates by a quarter percentage points and amid speculation that the US might do the same this month or in September.
The two Asian nations lowered their benchmark interest rate to support economic growth, which has slowed amid global trade tensions.
South Korea is taking an extra blow from its trade row with Japan.
“The board of directors has the final say on interest rates, guided by the latest economic data and growth prospects,” the Chinese-language udn.com quoted an unnamed central bank official as saying yesterday.
Economic conditions vary from country to country and demand different monetary responses to stimulate growth, the official said.
The central bank used to take its cue from the US Federal Reserve when setting interest rates, but has taken a more independent stance in the past few years.
It closely monitors the South Korean won’s movement to help Taiwanese exporters stay competitive, given the critical role the two nations play in global electronic supply chains.
The official attributed South Korea’s first rate cut in three years to Japanese curbs on exports of high-tech materials that are crucial to the manufacture of semiconductors and screens used in smartphones and televisions.
That poses a huge headache for companies like Samsung Electronics Co, SK Hynix Inc and LG Display Co, which rely heavily on Japan for these materials.
The dispute might allow some Taiwanese firms to benefit from order transfers, but weaken business for others in the supply chains of South Korean brands, the official said.
Analysts said Taiwan’s central bank might keep policy rates unchanged as long as the nation’s economic growth stays above 2 percent.
The bank last month trimmed its forecast for GDP growth this year from 2.13 percent to 2.06 percent.
The Chung-Hua Institution for Economic Research (中華經濟研究院) on Wednesday followed suit, lowering its forecast from 2.15 percent to 2.06 percent, but said it expected the economy to improve for the rest of the year, the official said, implying no need for an interest rate cut.
However, economic expansion does not necessarily make rate cuts impossible, as US Federal Reserve Chairman Jerome Powell last week suggested that a cut looks likely later this year.
Fitch Ratings expects the Fed to cut rates by a quarter percentage points at the end of this month or in September and then hold rates steady until the end of the year.
After all, the US economy expanded faster than expected in the first half, while consumer spending indicators are solid and job growth is robust, the ratings agency said.
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