The central bank yesterday again dashed hopes of local exporters that it would weaken the New Taiwan dollar to save bleak exports.
Taiwanese manufacturers’ call for the central bank to curb the rise of local currency has grown louder recently as they are facing competition from South Korean, Japanese and Chinese rivals. If the central bank can wield greater influence on the foreign exchange market to weaken local currency, Taiwanese exporters can sell their goods at lower prices, manufacturers said.
Exporters say they have been undercut by rivals due to unfavorable foreign exchange rates, especially with a slowing global economy curtailing demand for electronics, including PCs and smartphones.
The NT dollar has appreciated 2.14 percent against the US dollar since the beginning of this year, while the Korean won, Japanese yen and Chinese yuan have depreciated 0.82 percent, 3.49 percent and 0.05 percent respectively.
Central bank Governor Perng Fai-nan (彭淮南) yesterday said a weakening NT dollar would not be an antidote to Taiwan’s sluggish exports. Instead, local companies have to count on themselves by enhancing their manufacturing capabilities to win orders, he said.
However, Perng’s suggestion is a long-term solution. Weakening the local currency is considered by some as an effective approach, or at least a quick fix, to increasing exports and thereby boosting the economy.
The nation’s GDP is losing steam as the Directorate-General of Budget, Accounting and Statistics trimmed its annual economic growth forecast to 3.28 percent for this year, from its previous estimate of 3.78 percent, in light of sluggish exports, and sagging domestic consumption and private investment.
According to the Ministry of Economic Affairs statistics, exports last month unexpectedly fell to the lowest rate in about two years, down 5.9 percent annually to US$35.79 billion, excluding seasonal factors, with the ministry citing sluggish demand from China and Hong Kong for the decline.
The ministry expects the trend to continue this month, saying that an annual decline in exports for the third consecutive month is highly likely.
The trend could continue in the long term as leading indicators fell for a 12th consecutive month to a two-and-half-year low of 97.74 in April, while the economic monitoring indicator flashed “blue,” meaning a sluggish economy, for the first time in more than two years, according to the National Development Council.
As economists forecast, the central bank yesterday kept key interest rates unchanged for the 16th consecutive quarter in an effort to sustain GDP growth.
“We do not need to cut interest rates to prop up the economy yet,” Perng said.
Taiwan is steering a different course from its Asian neighbors. South Korea’s central bank on June 11 trimmed its policy rates by 25 basis points to a record-low to offset adverse impact from an outbreak of Middle East respiratory syndrome (MERS), the second rate cut this year. The People’s Bank of China has continued to inject capital into its financial system in attempts to support GDP growth.
The central bank has a good reputation for making suitable monetary policies and helped weather the financial crisis in 2008.
The question is whether Taiwan’s export-dependant economy can withstand a global economic slowdown, with China’s growth slowing and a stumbling European economic recovery overshadowed by a potential Greek debt default.
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