Taiwan’s GDP Slowdown Raises Bets for Rate Cut, Weaker Currency

A shock slowdown in Taiwanese economic growth is spurring speculation the central bank will cut interest rates and step up efforts to weaken the local dollar.

The island’s monetary authority has kept benchmark borrowing costs unchanged since 2011, defying a global easing wave this year. That may change after a report on Friday showed gross domestic product increased 0.64 percent last quarter from a year earlier, slowing from 3.37 percent in the previous period and less than all 20 estimates in a Bloomberg survey.

“The probability of a rate cut this year has risen to 40 percent from 20 to 30 percent earlier,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. “The export slump was even worse than expected.”

Overseas sales fell for a sixth month in July, according to a Bloomberg survey before data due next week, as a slowdown in China, the island’s top destination for shipments, sapped demand. Taiwan’s dollar is the only major Asian currency to rally versus the greenback this year, undercutting the competitiveness of exporters against Korean and Japanese rivals.

A Taiwanese rate reduction in 2015 is still a minority view, at least before Friday’s growth shock. Only HSBC Holdings Plc saw a cut this year, out of 17 estimates from lenders made between June 24 and July 24. The central bank may step up efforts to weaken the local dollar, which has strengthened 7.5 percent against the won in 2015 and 3.8 percent versus the yen.

“The central bank is more likely to use currency tools rather than interest-rate tools this year,” said Woods Chen, an economist at Ta Chong Bank Ltd. in Taipei. “The central bank may not cut rates this year as there are concerns of a property revival and the election is close, but it may do so in the first quarter of 2016.”

Taipei home prices are headed for their first annual decline after rising every year since at least 2005. The island will hold a presidential vote in January.

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