Taiwan's central bank cut its policy rates for the fourth consecutive time by 12.5 basis points to support economic growth in light of the current slack in the global economy and the fallout from the UK decision to leave the European Union that have compounded downside risks to global trade and the economic outlook.
The Central Bank of the Republic of China (Taiwan) (CBC) cut its benchmark discount rate to 1.375 percent and has now cut it by a total of 50 basis points since September 2015.
The bank's other key rates, the rate on accommodations with collateral and the rate on accommodations without collateral were cut by the same amount to 1.75 percent and 3.625 percent, respectively, from July 1. The decision of the bank's board was unanimous.
The central bank added that its accommodative monetary policy stance could be complemented by the "flexible application of macro-prudential measures when necessary" while an expansionary fiscal policy and structural reforms may also be implemented to support economic growth.
The CBC also confirmed that it would intervene in foreign exchange markets to maintain an orderly market "if global financial market turmoil created by the UK referendum leads to excess volatility and disorderly movements in the NT dollar exchange rate."
The central bank said last week's vote by the UK vote to leave the EU, known as Brexit, would "likely affect monetary policies of major economies, international raw materials, and in turn, outlook for the global economy."
In addition, the central bank said it would "ensure that market liquidity is sufficient to support regular economic activity," echoing moves by other central banks worldwide.
The rate cut was largely expected by financial markets as sluggish global growth has muted demand for Taiwanese exports and inflationary pressures remain weak.
The CBC noted the government's downward revision of its 2016 growth forecast to 1.06 percent from 1.47 percent in May and the outlook for the domestic economy "might shift towards a more cautious one" in light of increased uncertainty surrounding the global economy.
Taiwan's economy grew by only 0.78 percent in the first quarter from the fourth quarter of last year but on an annual basis it contracted for the third straight quarter. Year-on-year Gross Domestic Product in the first quarter shrank by 0.68 percent following falls of 0.89 percent and 0.8 percent in the preceding two quarters.
The CBC added that the unemployment rate had risen by 0.21 percentage points to 3.88 percent for the first five months of the year, indicating the slowdown was starting to weigh on the labor market.
Taiwan's inflation rate also eased to 1.24 percent in May from 1.87 percent in April with the central bank expecting soft demand and the negative output gap to exert downward pressure in the next six months despite the rebound of oil and commodity prices.
Taiwan's government forecasts annual inflation of 0.63 percent in the second half of this year, down from an average 1.67 percent in the first five months, and 1.09 percent for the full year.
Taiwan's dollar (TWD) depreciated by 4.2 percent against the U.S. dollar last year, dropping from May 2015 until late January this year.
But since then it has been firming and rose further today, probably because financial markets expect the CBC to hold rates.
The TWD was trading at 32.17 to the U.S. dollar today, up 2.5 percent since the start of the year.
The Central Bank of the Republic of China (Taiwan) issued the following statement: