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Despite rate cut, Taiwan's economy could contract in H1: bank

2016/03/26 17:13:55

Taipei, March 26 (CNA) Although the central bank cut its key interest rates again earlier this week, a Standard Chartered Bank economist expects that the Taiwan's economy will continue to struggle and post negative growth in the first half of the year.

Tony Phoo, a senior economist with Standard Chartered Bank, said the stimulus polices announced by the central bank are unlikely to help the economy get out of its current doldrums, and Taiwan will have to wait until the second half of the year to return to a growth path.

Taiwan remains haunted by weak global demand, which has hurt the country's outbound sales and exports and is likely to remain sluggish in the first half of this year, Phoo said.

In February, Taiwan's exports fell 11.8 percent from a year earlier. It was the 13th consecutive month in which the country's exports fell year-on-year and the ninth consecutive month in which they registered a double-digit decline.

The Ministry of Finance, which compiles export data, said the downtrend could reverse itself in the second half of the year because of a low comparative baseline, though the pace of decline should begin narrowing in the coming months.

The government forecast in mid-February that the economy as a whole will contract 0.64 percent year-on-year in the first quarter but recover to grow 1.02 percent in the second quarter and 1.47 percent for all of 2016.

Hoping to stimulate the economy and stop the inflow of "hot money," the central bank lowered its benchmark interest rates by 0.125 percentage points for the third consecutive quarter on Thursday, cutting the discount rate to 1.50 percent.

In addition, it took steps to revitalize the real estate market, eliminating a restriction that limited buyers of second homes to borrowing no more than 60 percent of the home's value.

The central bank imposed credit controls on the local property market in June 2010 in a bid to rein in skyrocketing home prices but has gradually eased the measures since. The restriction was eliminated on Thursday for all home purchases except for luxury homes.

Phoo said, however, that the latest interest cut was unlikely to give Taiwan's economy a significant boost, and the central bank could continue to ease its monetary policy and lower rates in the near future as long as inflation remains in check.

Taiwan's consumer price index rose 2.40 percent in February from a year earlier, the highest monthly increase since February 2013, when the CPI rose 2.96 percent year-on-year.

Phoo argued, however, that the February CPI was skewed by a spike in food prices driven by a cold spell during the month that reduced vegetable and fruit supplies, and that core CPI, which excludes vegetables, fruits and energy, was stable, rising only 0.82 percent during the month.

(By Tsai Yi-chu and Frances Huang)
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