The central bank is expected to keep key interest rates unchanged at its quarterly policymaking meeting on Thursday next week, as cases of the Delta variant of SARS-CoV-2 have caused uncertainty regarding the local economy, Wu Meng-tao (吳孟道), director of the sixth research division at the Taiwan Institute of Economic Research (台灣經濟研究院), said on Sunday.
“Although Taiwan has so far reported significant economic growth, the COVID-19 pandemic is still creating uncertainty about the economy,” Wu said.
Taiwan’s export performance is robust, but many domestic demand-oriented industries have felt the pinch from weaker consumption caused by recent locally transmitted COVID-19 cases, he said.
Photo: Ritchie B. Tongo, EPA-EFE
“We are in an economy that is developing unevenly. I do not expect the central bank to start tightening its monetary policy as early as the September meeting,” Wu said, referring to the restaurants, food stalls, hotels and travel agencies that have seen a decline in business.
The Directorate-General of Budget, Accounting and Statistics last month raised its forecast for Taiwan’s GDP growth this year by 0.42 percentage points to 5.88 percent, and upgraded its forecast for export growth in merchandise and services by 2.49 percentage points to 17.93 percent.
However, the agency lowered its forecast for private consumption growth by 1.39 percentage points to 1.36 percent.
Last month, the Bank of Korea raised interest rates by 25 basis points, its first hike in almost three years, but Wu said Taiwan’s central bank is unlikely to follow suit.
“In Taiwan, the central bank has adopted selective credit control in the home market to rein in home prices,” Wu said.
Dealers in the local foreign exchange market agreed with Wu, saying that the New Taiwan dollar has been stronger than its Korean counterpart so far this year, so if the central bank raises interest rates, the NT dollar would strengthen, which would hurt Taiwanese exporters.
"If the central bank adjusts its monetary policy now, the move will be expected to send ripples through the financial markets," Wu said. "Any rate hike now would no doubt raise the financial burden for many enterprises."
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