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Taiwan Monetary Policy June 2019

Taiwan: Central Bank stands pat again in June, leaves outlook broadly unchanged

Taiwan’s Central Bank of the Republic of China (CBRC) stood pat for the 12th consecutive quarter at its 20 June monetary policy meeting. The Board of Directors of the CBRC unanimously decided to leave the discount rate unchanged at 1.375%, as had been expected by analysts.

The decision came against a backdrop of slowing global growth, heightened trade uncertainty due to the U.S.-China trade war, and mild domestic momentum amid weak demand for Taiwan’s flagship tech exports. Nevertheless, the Central Bank expects economic growth to pick up somewhat in the second half of the year. Notably, the Bank expects exports to gain steam thanks to a low-base effect and diverted orders from companies trying to avoid tariffs on Chinese products. Moreover, the recent dovish shift from the U.S. Federal Reserve should provide some support by helping ease domestic financial conditions, while fiscal stimulus will further shore up domestic demand.

In this context, the CBRC left its growth and inflation projections broadly stable, with GDP growth seen clocking at 2.06% this year, down from 2.13% in March. The inflation projections were also revised downward only marginally, with headline inflation now seen at 0.87% in 2019 (from 0.91% in the March forecasts) and core inflation at 0.76% (down from 0.78% in March).

Looking ahead, most of our panelists expect the Bank to stand pat throughout this year and to not raise rates until 2021. The consensus view is summed up by Iris Pang, greater China economist at ING, who noted that “unless the economy falls into recession—which we don’t expect—we doubt the central bank will cut interest rates in 2019.” Moreover, she added that “Taiwan will hold a presidential election in January 2020, and the economy could benefit as a result. This is because the current government is likely to be more supportive to the economy to try to earn votes and keep [incumbent President] Tsai Ing-Wen in power.”

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