Taiwan: Central Bank cuts rates for first time since 2016
March 19, 2020
At its monetary policy meeting on 19 March, the Board of Directors of Taiwan’s Central Bank unanimously decided to lower the discount rate by 0.25 percentage points to a record low of 1.125%. The cut was the first policy rate change since June 2016 and was widely expected by market analysts.
The significant impact that the coronavirus (Covid-19) outbreak is having on the global economy was the principal reason behind the rate cut. In its communiqué, the Board highlighted the detrimental impact that disrupted global supply chains and weakening international trade levels will have on Taiwanese exports, while also stressing the effect that a sharp reduction in tourists will have on the services industry. Private consumption, consumer confidence and manufacturers’ investment levels are all scheduled to dry up in the short-term, with the potential for higher unemployment levels during the first half of the year.
As such, the Board cut rates in an attempt to assist the domestic economy while it also announced a TWD 200 billion bank liquidity program to support lending to small- and medium-sized enterprises. Meanwhile, the Bank cut its growth projection for 2020 to 1.9% from 2.6%, and reduced its inflation forecast to 0.6% from 0.8%. Iris Pang, an economist at ING, envisages a more pessimistic outlook, however, noting:
“This rapid spread of Covid-19 will hit global demand for electronic products, which is Taiwan’s main export item. More, the fiscal stimulus is too small to help SMEs and the job market if the global demand for electronic goods like smartphones continues to be persistently weak.”
Looking forward, the Bank stated that it would continue to monitor the economic impact of the pandemic and, if necessary, will “convene a standing council or an interim council to make appropriate use of monetary policy tools to fulfill its legal duties”.
The next monetary policy meeting is set for 18 June.
Author: Stephen Vogado, Economist