Taiwan: Central Bank cuts discount rate at the third consecutive meeting
March 24, 2015
At its 24 March monetary policy meeting, the Central Bank of the Republic of China (Taiwan) cut the discount rate by 12.5 basis points, from 1.625% to 1.500%. The move, which was anticipated by analysts, marks the third consecutive cut to the discount rate. The Bank also reduced the rate on accommodations with collateral and the rate on accommodations without collateral by 12.5 basis points each.
In its accompanying statement, the Central Bank pointed out that global economic growth remained weak at the start of 2016, with notable downside risks amid a persistent slowdown of China's economy and sluggish performance by Japan and other emerging markets economies. The Bank pointed out that lingering geopolitical tensions and muted prices for commodities in the first quarter of the year have increased economic risks to global economic growth. In addition, divergent monetary policies in the United States and the European Union, along with the introduction of negative rates by the Bank of Japan, have led to a notable rush of international capital flows into Asian economies, which can potentially destabilize international financial markets.
Regarding Taiwan, the Central Bank recognized that global economic growth has been weaker-than-expected. As a result, this led to weaker demand for Taiwanese goods, which has weighed on investment and consumption and has caused unemployment to increase. Nevertheless, the Bank expects that growth in 2016 will pick up on the back of public investment, which is expected to support domestic demand. According to data from the Directorate-General of Budget, Accounting and Statistics (DGBAS), the domestic economy is expected to expand 1.5% in 2016, which is down from the previous forecast of 2.3%.
The Bank summarized that global economic growth is continuing at a slower-than-expected pace, while the Taiwanese economy is expected to recover, albeit at a slower pace, and inflation expectations are to remain subdued. Against this backdrop, the Bank unanimously decided to cut the discount rate to support economic growth and maintain price stability. The Bank added that, “to maintain financial stability while taking into consideration subdued inflation expectations and a widened negative output gap, the Board judged that reducing policy rates will help create a stable financial environment and in turn stimulate the economy.”