Taiwan Monetary Policy September 2016

Taiwan

Taiwan: Central Bank halts easing cycle on healthy economic growth

At its quarterly monetary policy meeting on 29 September, the Central Bank of the Republic of China (Taiwan) decided to leave the discount rate unchanged at 1.375%, which was a decision that markets had expected, although some analysts had foreseen a further reduction to the key policy rate.

The Central Bank has cut the main monetary policy rate four times since September 2015 by a total of 50 basis points and this time the authority decided to leave interest rates unchanged “against a back drop of moderate global growth and renewed momentum for the domestic economy, along with a mild inflation outlook for next year.”

Regarding global developments and how they affect the Taiwanese economy, the Central Bank stated that the global economy continues to decelerate as a result of slower economic growth in the U.S., a still tepid recovery in the Eurozone economy and sluggish economic activity in Japan. The Chinese economy, on the other hand, is showing signs of stabilization while growth in other emerging economies gradually improves, boosted by higher commodities prices. The Bank recognized that downward risks to the global outlook persist in the form of the potential eruption of financial volatility in the wake of a U.S. interest rate increase, Britain’s exit from the European Union and a sharp deceleration in the Chinese economy.

On the domestic front, the Bank signaled that economic activity had gained momentum in the second quarter this year and recent data indicate that growth remained healthy in the third quarter, supported by higher exports. The Bank mentioned that the Directorate-General of Budget, Accounting, and Statistics (DGBAS) expects GDP growth to accelerate and expand 2.38% year-on-year in the final quarter of 2016, while for the entire year the DGBAS sees the economy growing 1.22%. Regarding consumer price developments, the Bank mentioned that subdued commodities prices, particularly for food raw materials, have not caused inflationary pressures in Taiwan. In a context of weak global growth, commodities prices are not expected to increase significantly in the coming months.

The Consensus view among the analysts that Focus Economics surveyed this month is that the Central Bank will cut interest rates at its last meeting in December, with a Consensus average discount rate of 1.28% in 2016. For 2017, panelists see the discount rate at 1.27%.


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Taiwan Monetary Policy Chart


Taiwan Monetary Policy September 2016

Note: Central Bank Discount Rate in %.
Source: Central Bank of the Republic of China (Taiwan).


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