The central bank is highly likely to stand pat with its neutral monetary policy at its meeting on March 19 due to sufficient liquidity and improved GDP growth, unaffected by a string of interest rate cuts by central banks in Asia as the COVID-19 outbreak spurs recession fears.
China, the Philippines and Thailand earlier this month slashed interest rates to step up monetary and credit support for sectors affected by the virus, with the ultimate goal of bolstering their weakening economies.
South Korea’s central bank and financial officials yesterday scrambled to discuss emergency measures to minimize the fallout of the outbreak, which is likely to hurt the country’s export-oriented economy. The central bank of South Korea is widely expected to pre-emptively cut the benchmark interest rate to inject more liquidity into the market at a meeting on Thursday.
The monetary body’s emergency meeting came after the South Korean government raised its threat alert to the highest level on Sunday — the first time since 2009 — due to infections spiking over the past week to more than 760 cases, the second-highest after China. South Korea’s GDP could shrink even further to about 1 percent this year as some economists hold a cautious view about the virus’ effects.
Global ratings agency Moody’s has revised down its forecast for GDP growth in South Korea to 1.9 percent from 2.1 percent, citing the crippling effects of COVID-19 on the economy, as well as on China, the largest importer of South Korean products.
Singapore last week warned of a recession this year, blaming the effects of the virus.
Taiwan and South Korea are similar in some ways. Taiwan has an export-oriented economy and is heavily dependent on China for economic growth, but its central bank has stronger support from the Central Epidemic Command Center (CECC). That makes a noticeable difference. Vigorous measures have prevented the virus from spreading in the nation, which gives the central bank leeway to use monetary measures to combat low inflation, maintain currency stability and save its “silver bullets” for its primary responsibilities.
As of yesterday, Taiwan had reported 30 confirmed cases of COVID-19 and one virus-related death.
The Cabinet has said that it plans to push through a NT$60 billion (US$1.97 billion) emergency plan to offer loans to struggling travel agencies and subsidize bank loans for affected firms, mostly small and medium-sized enterprises. The budget is twice the amount the government allocated to SARS-affected firms.
Last month, DBS forecast that Taiwan’s GDP would grow by 2.3 percent this year. If it had not been for the virus, the nation’s GDP would have expanded by 2.5 to 3 percent, DBS said.
However, the central bank on Dec. 19 last year kept its rediscount rate unchanged at 1.375 percent for the 14th consecutive quarter, due to healthy economic growth and benign inflation.
Yet the outbreak is dealing a blow to investor confidence. The New Taiwan dollar yesterday dipped to its weakest level in about two-and-a-half months at NT$30.472 against the US dollar, after the US listed Taiwan as an area with community transmission. The CECC objected to the categorization.
Nevertheless, foreign investors sold a net NT$26.339 billion worth of local stocks, bringing total net sales to NT$104.57 billion since the beginning of the year. The TAIEX has lost 4.67 percent since Jan. 2 to close at 11,534.87 points.
As the outbreak has not reached its peak, central bank officials should remain vigilant amid the rising risks of community-level transmission and more severe erosion of the economy.
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