Taiwan: Central Bank cuts discount rate for the first time in six years
September 24, 2015
At its 24 September monetary policy meeting, the Central Bank of the Republic of China (Taiwan) decided to cut the discount rate for the first time in six years, from 1.875% to 1.750%. The discount rate had been unchanged at 1.875% since July 2011. The Bank also reduced the rate on accommodations with collateral and the rate on accommodations without collateral. The decision was on par with market expectations.
In its accompanying statement, the Central Bank pointed out that while the euro area and the United States recorded steady economic growth, China’s growth has weakened and exports have stagnated in many Asian countries. The Bank added that risks remain regarding the pace of the global economic recovery and international institutions have lowered their forecasts for emerging market economies this year. Further, the Bank stated that China’s slowdown, the renminbi depreciation and the U.S. Federal Reserve’s decision to postpone an interest rate hike suggest uncertainties remain over global growth prospects going forward.
Regarding Taiwan, the Central Bank stated that tepid external demand has caused exports to shrink and consumer confidence to fall. However, the labor market has improved steadily. Regarding price developments, the Central Bank recognized that consumer prices continue to decline on an annual basis largely on the back of low prices for energy and fuel. The Bank added that the combination of weak economic activity, low demand for funds and muted inflation expectations have caused short- and long-term interest rates to trend downwards.
The Bank summarized that the global economic recovery remains slow while the domestic economy moderates and inflation expectations remain subdued. Against this backdrop, the Bank decided to cut the discount rate to support economic growth and maintain price stability. The Bank added that it will “continue to monitor banks’ management of real estate-associated credit risk and the enforcement results of targeted macro-prudential measures, and undertake appropriate policy actions to ensure financial stability.”