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Central bank forecast to leave interest rates unchanged Thursday

2019/09/16 17:15:54

Taipei, Sept. 16 (CNA) Taiwan's central bank is forecast to leave its key interest rates unchanged in a quarterly policymaking meeting scheduled for Thursday, as the local market remains awash in liquidity, according to economists.

In addition, the economists said that as Taiwan's economic fundamentals remain sound, it is unnecessary for the central bank to cut interest rates to stimulate the local economy at present.

If the forecast is correct, it will be the 13th consecutive quarter in which the local central bank has maintained its monetary policy with a discount rate of 1.375 percent, rates on accommodations with collateral at 1.750 percent and accommodations without collateral at 3.625 percent.

The upcoming policymaking meeting has been closely watched by market observers when major central banks around the world have lowered interest rates to boost the economy.

The European Central Bank announced last week a lowering of its key interest rates by 10 basis points to minus 0.5 percent and said it will kick off a quantitative easing program that will entail 20 billion euros (US$21.9 billion) of net asset purchase per month if necessary.

The U.S. Federal Reserve has scheduled a policymaking meeting for Tuesday and Wednesday and the market widely anticipates that the U.S. central bank will lower interest rates again after a cut in July.

Norman Yin (殷乃平), a professor of the Department of Money and Banking of National Chengchi University, said that with trade tension between the United States and China eased to some extent, foreign institutional investors appeared willing to move their funds back to regional capital markets, including Taiwan.

Yin, who is also a board member of Standard and Chartered Bank, said that because more and more Taiwanese companies operating overseas, in particular in China, have pledged to invest funds at home to avoid a possible impact from the global trade disputes, the local market is full of liquidity.

"It is unnecessary for the local central bank to ease its monetary policy for now," Yin said. "The central bank is expected to leave its key interest rates unchanged Thursday."

Gordon Sun (孫明德), director of the Economic Forecasting Center of the Taiwan Institute of Economic Research (TIER), said that while major central banks have loosened their monetary policies to stimulate the economy, Taiwan still enjoys a growing economy and there is no need for the local central bank to follow suit for the moment.

"Taiwan's economy still appears healthier and the chance for a rate cut remains low," Sun said.

According to the latest forecast by the Directorate General of Budget, Accounting and Statistics in August, Taiwan's gross domestic product will grow 2.46 percent in 2019, an upgrade of 0.27 percentage points from an earlier estimate made in May.

Sun said that although the central bank has maintained its monetary policy for the past 12 quarters, interest rates in the local market have still been low and it is not necessary for the bank to worry about any inflow of foreign hot money.

He said that the future rate movement in Taiwan will depend on the central bank's forecast about the local economy in the future.

Echoing Sun, Yin said that since international organizations have estimated that the global economy will suffer a recession in the fourth quarter of this year or in the first quarter of next year, the local central bank will have to closely monitor global conditions before deciding whether the country needs a rate cut.

In addition to the rate adjustments, Yin said, the market has kept a close eye on what the central bank will do with recent fluctuations of the Taiwan dollar against the U.S. dollar at a time of quick foreign fund flows.

(By Wu Chia-jung and Frances Huang)
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