As widely expected, the Taiwanese central bank, CBC, lowered its key interest rate as the economic growth outlook continues to be under pressure. During its meeting, the CBC cut the rediscount rate to 1.375 percent from 1.5 percent. The Taiwanese government had lowered its economic growth outlook previously.
Taiwan’s economic growth has contracted for three straight quarters, while there has been a drop in external demand for its goods for quite some time. Taiwan’s foreign demand faces a new risk from the Brexit vote in the second half of 2016. Europe accounts for 9 percent of Taiwan’s total exports. There is possibility that the private sector in Europe might halt further investment that will further weigh on Taiwan’s exports, noted ANZ in a research report.
Usually, the Taiwan’s central bank’s rate policy closely follows the US Fed. But the US central bank does not seem in a hurry to hike rates in the near term; hence the CBC is also not expected to hike rates.
During its March meeting, CBC Governor Perng Fai-nan had mentioned that he will “not see zero rate or negative rate” in his terms. This implies that Perng will attempt to keep the firepower as the room for additional rate cut is quite limited. The Taiwanese central bank is expected to keep a close watch on the global developments in future, added ANZ. The CBC is likely to maintain a strong easing bias.
