Economists expect the central bank to leave its key interest rates unchanged for a seventh straight quarter at its policymaking meeting on Thursday, given Taiwan’s strong economic growth and stable inflation, even though the US Federal Reserve last week cut interest rates for a third consecutive time.
Cathay United Bank Co (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said Taiwan’s economy would likely grow 7.37 percent this year and 3.54 percent next year, citing the latest forecasts by the Directorate-General of Budget, Accounting and Statistics (DGBAS).
Inflation seems to be tame, as the DGBAS cut its inflation forecast to 1.67 percent for this year, below the 2 percent alert level, so the central bank has little incentive to adjust its key interest rates, Lin said.
Photo: George Tsorng, Taipei Times
“Unless Taiwan’s exports show signs of an apparent decline, it will be hard for the central bank to find a reason to cut interest rates,” Lin said. “It will undoubtedly leave rates unchanged this time.”
The central bank at its board meeting in September kept the discount rate at 2 percent, the highest level in 15 years. It also maintained the rate on refinancing of secured loans and the rate on temporary accommodations unchanged at 2.375 percent and 4.25 percent respectively.
Taiwan Institute of Economic Research research division head Wu Meng-tao (吳孟道) said there was no urgency for the central bank to cut rates.
The central bank could even maintain the current rates into the first half of next year while observing how the global economy evolves, he said.
Lin and Wu said monitoring and reacting to the New Taiwan dollar’s value against the US dollar would be one of the central bank’s key priorities.
The central bank needs to pay close attention to the foreign exchange market to avoid a repeat of the rapid appreciation of the NT dollar in May, which put pressure on Taiwanese exporters, particularly those in the non-tech sector, Wu said.
Lin cautioned that the next Fed chair, to be appointed by US President Donald Trump, might be willing to weaken the greenback.
That would narrow the interest rate gap between the US and Taiwan, and the NT dollar, buoyed by relatively strong economic growth, could face upward pressure, he said.
In addition, the central bank would likely maintain its most recent round of selective credit controls in the housing market for the time being to keep a lid on property speculation and rising home prices, Taiwan Institute of Economic Research Taiwan Industry Economics Database director Arisa Liu (劉佩真) said.
The seventh round of selective credit controls, imposed in September last year, has resulted in a fall in transactions and a slowdown in the rise of housing prices.
Any easing of the policy would likely come in the first half of next year, Liu said.
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