The COVID-19 outbreak poses greater risks to Taiwan’s economic and consumer activity than SARS did in 2003, the central bank said yesterday in a written report, which indicated that there is room for policy action.
Bank Governor Yang Chin-long (楊金龍) is to discuss the risks today at a meeting of the Legislative Yuan’s Finance Committee on the effects of the coronavirus.
The report comes exactly one week before the central bank’s quarterly board meeting, at a time when fears over the outbreak have driven peers in the US, the UK and elsewhere to cut interest rates to support economic growth.
Photo: CNA
The central bank has left the benchmark rediscount rate unchanged at 1.375 percent for 14 consecutive quarters, even at the height of US-China trade tensions.
“COVID-19’s spread is far more serious than SARS’ and the spillover effect is casting a shadow over the global economic outlook,” the report said.
China, as the world’s second-largest economy, is both the main manufacturing and consumer market, contributing 1 percentage point of global GDP growth at 2.63 percent last year, Yang said.
Advanced nations rely heavily on imports of consumer goods from China, while Asian countries play an active part in offering intermediate products and services, he said.
The slow resumption of work in China would cause supply chain disruptions that would hurt both advanced and developing countries, the governor said.
That could mean significant order cancelations for Taiwanese manufacturers, as China accounts for 40 percent of outbound shipments and supplies materials used for producing electronic components, economic officials have said.
The outbreak is expected to dent Taiwan’s GDP growth by between 0.1 percentage points and 0.7 percentage points this year, with the pinch most evident in the first quarter, Yang said, citing research institutes at home and abroad.
Consumer prices might also fare softer in light of falling oil prices and subdued consumer sentiment, allowing room for policy easing, if necessary, the report said.
The central bank lowered borrowing costs by 25 basis points in June 2003 from 1.625 percent to 1.375 percent to help Taiwan emerge from the effects of SARS.
Last week’s surprising rate cut by the US Federal Reserve might be followed by more stimulus measures, which could drive money to Taiwan and push up the New Taiwan dollar, the bank said, adding that the scenario would be unfavorable for local exporters.
Yang said the bank would step in to stabilize the New Taiwan dollar and fend off speculation.
Toward that end, the bank bought US$5.5 billion net last year and its exchange position stood at US$99.1 billion last month, the report said.
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