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Taiwan Monetary Policy December 2018

Taiwan: Central Bank leaves rate unchanged in December amid slowing growth momentum and trade worries

Taiwan’s Central Bank of the Republic of China (CBRC) stood pat for the 10th consecutive quarter at its 20 December monetary policy meeting. The Board of Directors of the CBRC unanimously decided to leave the discount rate unchanged at 1.375%, matching analysts’ expectations. The decision came as inflationary pressures remain low, while domestic economic momentum is weakening. Particularly, the Bank expressed its concerns regarding multiple growth headwinds going forward, most notably a global slowdown—especially in China, upon which Taiwan’s all-important trade sector is heavily dependent—and tightening financial conditions, coupled with elevated tensions and uncertainty related to the U.S.-China trade war.

Reflecting these worsening economic conditions, the CBRC downgraded its projections for 2019 GDP growth from 2.48% to 2.33%. Nonetheless, the Bank noted that domestic demand should remain mostly stable in 2019, as private consumption is expected to remain robust thanks to a strong labor market, while investment should benefit from public infrastructure projects. Consequently, most of the downside risks to growth are expected to originate from flailing external demand, which is reflected by recent data indicating weak export orders.

Against this backdrop, the Bank estimated that the inflation outlook will remain very mild in coming quarters. Indeed, the Bank’s projection for headline inflation was left unchanged at a modest 1.05%. Meanwhile, its forecast for core inflation was revised downwards slightly, from 1.00% at its September meeting to just 0.93% as of December, owing largely to the recent tumble in oil prices which appears poised to limit imported inflation in 2019.

With subdued inflationary pressures and a rapidly deteriorating global growth outlook, a large majority of FocusEconomics Consensus Forecast panelists currently expect the Bank to tread lightly with monetary policy tightening going forward. Most of the panel expects one rate increase at most in 2019, which would likely occur in H2.

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