Taiwan: Central Bank holds its fire at second meeting of 2017
June 22, 2017
The Central Bank of the Republic of China (CBRC) stood pat at its second quarterly monetary policy meeting of 2017, which was held on 22 June. The decision to keep the discount rate unchanged at 1.375% was expected by market analysts who see further easing unlikely throughout this year and next. This was the fourth consecutive quarter in which the Bank has left the main monetary policy rate unchanged, following an easing cycle that began in Q3 2015.
The Bank has faced little pressure to modify its monetary policy stance. Indeed, economic growth momentum has continued to build since the outset of the year, supported by robust dynamics in the island’s external sector and renewed fiscal stimulus, which limits the need for further support from the Bank. The U.S. Federal Reserve’s tightening cycle has further reduced the CBRC’s ability to loosen its stance. On the other hand, inflationary pressures have been largely muted despite the pick-up in economic growth, which limits the Bank’s need to tighten its belt. On top of this, growth is expected to ease in the second half of the year as demand for Taiwanese electronics from mainland China dwindles, which will limit the CBRC’s room to maneuver and revert the cycle.
Following the meeting, Governor Perng Fai-nan stressed that monetary policy was appropriately loose and that liquidity was sufficient to support the economy. With very low chance of a policy rate cut, focus is increasingly turning to when the CBRC will begin to increase rates. The majority of our panel expects that such a move will not take place until 2018, given that an already stronger Taiwanese dollar is weighing on the island’s competitiveness.
Author: David Ampudia, Economist