Taiwan's central bank cut its policy rates, including the benchmark discount rate, by a further 12.50 basis points, saying the pace of global economic recovery is still not as expected, forecasts for economic growth have been revised lower, there is a negative output gap and inflation is moderate.
The Central Bank of the Republic of China (Taiwan), which has now cut its rates by 25 basis points this year following a cut in September, said exports had continued to decline and noted that the government had cut the forecast for fourth quarter economic growth to 0.49 percent, and for the full year to 1.06 percent.
In 2016 the international economy is expected to recover moderately and the government has forecast growth of 2.32 percent although the negative output gap is expected to continue to widen and aggregate demand will be inadequate, the central bank said.
Since September Taiwan's inflation rate has been positive - it was 0.53 percent in November - compared with average inflation of minus 0.35 percent from January to November. For the full year, inflation is forecast to average minus 0.31 percent, rising to 0.84 percent in 2016.
In addition to the cut in key policy rates, the central bank said it maintained its target for M2 money to 2.4 to 6.5 percent to help promote growth.
As of Dec. 18, the central bank's discount rate will be cut to 1.625 percent from 1.75 percent, the secured lending facility rate to 2.0 percent from 2.125 percent, and the short-term facility rate to 3.875 percent from 4.0 percent.
Taiwan's dollar depreciated from May through late September before rebounding. In response to the rate cut, the TWD slipped and was trading at 32.9 to the U.S. dollar, down 3.6 percent this year.