Taiwan's central bank left its benchmark discount rate steady at 1.375 percent "against a backdrop of moderate global growth and renewed momentum for the domestic economy, along with a mild inflation outlook for next year."
The Central Bank of the Republic of China (Taiwan) (CBC), which has cut its key rate four times since September 2015 by a total of 50 basis points, forecast the inflation rate would rise slightly to 0.60 percent in the fourth quarter of this year to average 1.12 percent for 2016, slightly up from its June forecast of 1.09 percent.
Taiwan's inflation rate eased to 0.57 percent in August from 1.23 percent in July and with "no signs of strong domestic demand" and low raw materials prices the central bank said the inflation outlook for 2017 was "expected to be mild."
Taiwan's economy is improving with Gross Domestic Product returning to positive territory in the second quarter following three consecutive quarters of contraction.
The CBC said exports grew in July and August and the government's budget, accounting and statistics office forecasts growth of 2.38 percent in the fourth quarter and 1.22 percent for the full year, up from its previous forecast of 1.06 percent.
For 2017 growth is seen rising further to 1.88 percent as exports continue to improve along with a "mild" increase in private consumption and investments.
Taiwan's GDP grew by 0.15 percent in the second quarter from the first quarter for annual growth of 0.7 percent following declines of 0.29 percent, 0.89 percent and 0.8 percent, respectively, in the previous three quarters.
The central bank confirmed its policy of maintaining an "orderly" foreign exchange market in the event of "excess volatility and disorderly movements," adding that easing by major advanced economies, along with uncertainty over the U.S. Federal Reserve's rate hike, had "induced massive, erratic cross-border capital movements and increased fluctuations in the NT dollar exchange rate."
After declining from May 2015 to mid-January, the Taiwan dollar has been appreciating steadily against the U.S. dollar and was trading at 31.4 to the dollar today, up 5 percent this year.
The Central Bank of the Republic of China (Taiwan) issued the following statement:
ipei, Sept. 3 (CNA) The Central Bank of the Republic of China (Taiwan) has scheduled a quarterly policymaking meeting for Sept. 29 to decide whether it will continue to cut its key interest rates.
Since September 2015, the central bank has launched a rate cut cycle. In a quarterly policymaking meeting held in late June, the bank cut interest rates by 0.125 percentage points, making the fourth consecutive quarter for a rate reduction, to bolster the local economy.
After the latest rate cut, the discount rate now stands at 1.375 percent, the rate of accommodations with collateral at 1.750 percent, and the rate of accommodations without collateral at 3.625 percent.
The current discount rate only trails a historic low of 1.250 percent seen in 2009, when a global financial crisis hit the local economy badly, prompting the central bank to significantly ease its monetary policy and push down interest rates.
Following the four interest cuts in the last 12 months, the market has anticipated that the room for the central bank to further lower interest rates will be limited, analysts said.
They said that since the U.S. Federal Reserve is expected to raise interest rates later in the year, the interest rate spread between Taipei and Washington will be widened further, which could impose an adverse impact on the Taiwan dollar value and lead to fund outflows that will affect the local economy, analysts said.
In addition, the analysts said that the local economy has shown signs of improving, which is expected to prompt the central bank to stop further easing its monetary policy in the upcoming meeting for the third quarter.
In July, the country's outbound sales grew 1.2 percent year-on-year to US$24.12 billion, ending 17 consecutive months of decline, largely on the back of solid demand for electronic devices, in particular, high-end semiconductors.
In addition, Taiwan's composite monitoring indicator increased by three points to 23 in July, the highest it has been since March 2015. The July indicator flashed a green light, indicating stable growth, for the first time in 17 months.
In mid-August, the Directorate General of Budget, Accounting and Statistics raised its forecast of Taiwan's economic growth for 2016 to 1.22 percent from an earlier estimate of a 1.06 percent increase, citing better-than-expected outbound sales and private consumption.