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Taiwan Monetary Policy March 2019

Taiwan: Central Bank leaves rate unchanged in March and downgrades its growth forecasts

Taiwan’s Central Bank of the Republic of China (CBRC) stood pat for the 11th consecutive quarter at its 21 March 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 against a backdrop of rapidly worsening growth and feeble price pressures, as the country remains deeply affected by a downturn in the tech cycle, lower global growth and trade uncertainties stemming from the U.S.-China dispute. In addition, the recent shift of the Federal Reserve at its March policy meeting—the institution now plans to leave rates unchanged throughout 2019—further underpinned the CBRC in its decision by alleviating capital outflows and downward pressure on the Taiwanese dollar.

Reflecting worsening economic conditions, the CBRC downgraded its projections for 2019 GDP growth from 2.33% to 2.13%. However, while the external sector remains under pressure, domestic dynamics should be supported by a healthy dose of fiscal stimulus and resilient private consumption growth amid a tight labor market.

Against this backdrop, the Bank again estimated that price pressures will remain weak over the year. Indeed, the Bank’s projection for headline inflation this year was revised down to just 0.91%, from 1.05% as of December. Meanwhile, its forecast for core inflation was also revised downwards, from 0.93% as of December to 0.78% in March.

With subdued inflationary pressures and a rapidly deteriorating growth outlook, virtually all of FocusEconomics Consensus Forecast panelists currently expect the Bank to leave rates unchanged until the end of 2020. Some panelists even see a possible rate cut this year if growth continues to disappoint. Economists at Nomura, for instance, noted “a higher risk of a symbolic policy rate cut by the CBC, if fiscal stimulus turns out more modest than we expect ahead of the presidential election in January 2020”. Meanwhile, ING’s Iris Pang believes the Central Bank would only enact a rate cut in the case of a contraction in the quarterly GDP figure.

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