Central bank leaves interest rates unchanged (update)

06/18/2020 08:24 PM
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Central Bank Governor Yang Chin-long
Central Bank Governor Yang Chin-long

Taipei, June 18 (CNA) Taiwan's central bank has decided to leave its key interest rates unchanged after concluding a quarterly policymaking meeting Thursday.

The discount rate will remain at 1.125 percent, the lowest in the country's history, with the rate on accommodations with collateral at 1.50 percent and the rate on accommodations without collateral at 3.375 percent, according to the central bank.

Meanwhile, the central bank also downgraded its forecast for Taiwan's gross domestic product (GDP) growth in 2020 by 0.40 percentage points to 1.52 percent from a previous estimate of 1.92 percent in March.

In its previous quarterly policymaking meeting held in March, the central bank lowered interest rates by 0.25 percentage points, marking the first rate reduction after leaving interest rates unchanged for 14 consecutive quarters, at a time when the global economy faced strong headwinds caused by the COVID-19 coronavirus.

The move by the central bank to maintain its monetary policy in Thursday's meeting had been expected by the market.

Economists have said that the local market remained awash in liquidity and that it was unnecessary for the bank to cut interest rates for the moment, adding that the local economy remains resilient as the country has been doing well to contain the virus, despite the pandemic hitting the global economy badly.

In a statement, the central bank said although major central banks around the world are pumping funds into their markets to lessen the economic impact of the virus, such fund injections could blur the boundary between monetary and fiscal policies.

The central bank said fund injections by major central banks have been driven by political considerations as well as financial market movements, which could undermine the independence of central banks.

The central bank added if a central bank keeps easing monetary policy, it would not be easy to take back the funds when necessary, which could harm market mechanisms and enterprise operations.

In addition, the central bank said if a central bank becomes involved in high-risk markets, in particular the equity market, by easing monetary policy, it will only boost equity prices short term, adding that such fund injections are likely to hurt corporate governance and the economy in the longer run.

In addition, more fund injections could trigger inflationary concerns, according to the central bank.

Commenting on its downgraded forecast for Taiwan's GDP growth in 2020, the central bank said although the COVID-19 contagion will hurt global demand and in turn affect Taiwan's exports, Taiwan's government is drafting stimulus measures to reduce the negative effects, a move expected to help the economy rebound quarter by quarter.

The central bank said as COVID-19 has created uncertainty over the global economy, it would, if necessary, hold policymaking meetings on an irregular basis.

The central bank forecast that Taiwan's consumer price index (CPI) will rise 0.01 percent in 2020 with core CPI, which excludes vegetables, fruit and energy, growing 0.36 percent.

In late May, the Directorate General of Budget, Accounting and Statistics forecast Taiwan's economy would grow 1.67 percent in 2020, although that still represented a downgrade of 0.70 percent from the previous estimate in February.

(By Pan Tzu-yu and Frances Huang)

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