Thursday, June 25, 2015

Taiwan maintains rate, inflation seen improving mildly

    Taiwan's central bank maintained its benchmark discount rate at 1.875 percent, as expected, saying the domestic economy is growing slowly, the output gap remains negative and the outlook for inflation is expected to "improve mildly."
    The Central Bank of the Republic of China (TAIWAN) (CBC), added that spillover effects from diverging monetary policies in advanced economies have led to "large and frequent" movements in international capital markets, but reiterated that it would maintain orderly markets in the event of destabilizing forces.
    The CBC, which has held its rate steady since June 2011, also warned of potential threats to the global economy and the stability of international financial markets from volatile cross-border capital movements in connection with a normalization of U.S. monetary policy, continued monetary easing in Europe, Japan and China along with the "lingering uncertainty" over Greek debt talks.
   Taiwan's export-dependent economy slowed slightly in the first quarter, partly due to slower growth in China, but the central bank said it expects the global economy to edge up in the second half of the year as the impact of lower oil prices subsides. Domestic demand is projected to be mild, helped by continued growth employment and wages.
    The government's statistics office is forecasting 3.34 percent growth in the second half of this year, up from 3.21 percent in the first half, and full-year growth of 3.28 percent, below its previous forecast of 3.78 percent from March and up 2014's growth of 3.7 percent.
   In the first quarter of this year Taiwan's Gross Domestic Product expanded by 0.68 percent from the previous quarter for annual growth of 3.37 percent, down from 3.47 percent.
    Taiwan's consumer price inflation rate was minus 0.73 percent in May, the fifth month in a row of deflation, but the CBC expects inflation to rise in the second half of the year as oil prices stabilize and the base effect of the fall in oil prices gradually diminishes. 
   The government forecasts headline inflation of 0.8 precent in the second half of the year and 0.13 percent for the full year, with core inflation up by an average of 0.81 percent. In March the statistics office forecast 0.26 percent headline inflation for this year.
    Unlike most currencies, the Taiwan dollar appreciated against the U.S. dollar from January through late May, but since then it has eased slightly. Today the Taiwan dollar was quoted at 30.9 to the USD for a rise of 2.6 percent since the start of the year.

    The Central Bank of the Republic of China (TAIWAN) issued the following statement:

"Monetary Policy Decision of the Board Meeting
I. Global economic and financial conditions:
As of recently, the euro area and Japan both showed signs of improvement and the US economy expanded moderately, while China, as well as several other emerging market economies, experienced varying degrees of slowdown. In the context of an uneven pace of recovery, international institutions have revised down their global growth projections for the entire year, albeit with a slight upturn in the latter half of the year compared to the first half. 
The anticipated policy normalization of the US Fed, the continued monetary easing in the euro area, Japan and China, and lingering uncertainty over the Greek debt negotiations have brought about more volatile cross-border capital movements. This could potentially threaten the stability of international financial markets and add to the uncertainties surrounding the global economic recovery.

II. Domestic economic and financial conditions:
1.Since the beginning of the year, international oil prices have been fluctuating at low levels. In addition, the global economy did not advance as fast as projected and China's economy decelerated, dampening Taiwan's exports. Private investment also posted weaker-than-expected growth. As a result, the economy moderated slightly. 
Toward the second half of the year, the global economy is likely to edge up and the effect of low oil prices on exports subsides. Moreover, domestic demand is projected to be mild, supported by continued growth in employment and wage. The Directorate-General of Budget, Accounting, and Statistics (DGBAS) forecasts the domestic economy to expand by 3.34% for the second half of the year, higher than the 3.21% in the first half. For the year as a whole, Taiwan is forecast to achieve a growth rate of 3.28%. 
Labor market conditions continued to improve. Bolstered by greater market demand for hiring, the number of employed persons increased steadily and the unemployment rate dropped to 3.62% in May. Average real monthly earnings grew by 5.25% for the first four months of the year.

2.Weighed down by energy-related price declines in oil, electricity, and fuel, the CPI annual growth rate averaged -0.66% for the first five months of the year. After excluding prices of fruit, vegetables, and energy, core inflation averaged a mild 0.94% over the same period.
As international oil prices stabilized and the higher base effect of oil prices gradually diminished, the pressures from falling energy prices are likely to weaken. Therefore, the CPI annual growth rate is expected to rise in the second half of the year. The DGBAS forecasts inflation to reach 0.80% for the second half of 2015, and 0.13% for the entire year. The CBC projects core inflation to advance at an average pace of 0.81% for the year as a whole.
3.In view of ample market liquidity since the beginning of the year, the CBC has continued to conduct open market operations to maintain banks' excess reserves at an appropriate level. The annual growth rate of the monetary aggregate M2 for the first five months of the year went up to 6.46%, largely attributable to continued capital inflows. In terms of interest rates, the overnight interbank call loan rates remained broadly stable, whereas the 10-year domestic government bond yield exhibited slight fluctuations.

III. At the meeting today, the Board reached a unanimous decision: 
In sum, the global economy still experiences a slow recovery, while the domestic economy grows steadily, the output gap remains negative, and the inflation outlook is anticipated to improve mildly. Against this backdrop, the Board judged that a policy rate hold will help maintain price and financial stability and foster economic growth. The CBC will continue to closely monitor both international and domestic economic and financial developments, and undertake appropriate monetary policy actions so as to fulfill the statutory objectives of central bank operations.

The rate decision is as follows: 
The discount rate, the rate on accommodations with collateral, and the rate on accommodations without collateral are maintained at their current levels of 1.875%, 2.25%, and 4.125%, respectively.

IV. The CBC has introduced a series of targeted macroprudential measures since June 2010, which have helped rein in banks' real estate-related risks and sustain financial stability. Positive results from these measures, combined with government policy efforts on property-related tax measures and the introduction of the consolidated land and housing sales tax based on actual transaction prices, will help promote sound development in the housing market.

V. Spillover effects resulting from the divergence in monetary policy stances in advanced economies have led to large and frequent international capital movements. Faced with this destabilizing force to Taiwan's foreign exchange and financial markets, the CBC will, in line with its legal mandates, step in to maintain an orderly market.

VI. The CBC has employed the ''big data'' approach in order to facilitate policy formulation and implementation by analyzing a wide range of data on day-to-day transactions in the foreign exchange and financial markets and keeping track of changing market conditions."


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