Taiwan Holds Key Interest Rate, Pausing One-Year of Easing

  • 14 of 26 in a Bloomberg survey forecast rates would be held
  • Central bank cites growth risks in addition to export optimism

Taiwan’s central bank paused its yearlong easing cycle amid a recovery in exports and signs of improvement in the labor market.

Policy makers held the discount rate to banks at a six-year low of 1.375 percent, according to a statement from the central bank after a meeting in Taipei. Economists were divided on the decision, with 14 of 26 in a Bloomberg survey forecasting rates would be held while the rest predicted another cut.

The monetary policy board led by Governor Perng Fai-nan held off on making a fifth reduction since September last year after growth accelerated to 0.7 percent in the second quarter following three quarters of contraction. Economists project it will accelerate to 1.8 percent next quarter while the government in August revised its estimate to a 1.22 percent expansion, up from 1.06 percent.

"Having left interest rates on hold today, we think it may now leave rates on hold in the short-term," Gareth Leather, senior Asia economist at Capital Economics in London, wrote in a note. "But given the poor growth outlook for 2017, there is still a good chance the CBC will resume its rate cutting cycle next year."

Governor’s Term

One of the longest-serving central bank governors in the region, Perng said at today’s press briefing the current term would be his last. He is scheduled to hand over the reins in February 2018, after 20 years at the helm of Taiwan’s economy.

Recent data signal fresh durability for the island’s export-dependent economy, aided by strong sales of Apple’s Inc. new iPhone 7. Export orders for August jumped 8.3 percent from a year earlier for the first expansion in 17 months on rising demand for the components inside handheld devices as well as electrical machinery. Industrial production in the month rose 7.74 percent, on electronics and rising oil prices.

However in a separate report distributed today, the central bank said downside risks for growth could include China’s continued economic slowdown and falling tourism from there, as well as declining trading volumes in Taiwan’s stock market.

— With assistance by Yu-Huay Sun, Chinmei Sung, Enda Curran, and Debra Mao

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