Taiwan's central bank leaves interest rates unchanged (update)

09/17/2020 08:28 PM
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Central bank governor Yang Chin-long
Central bank governor Yang Chin-long

Taipei, Sept. 17 (CNA) Taiwan's central bank on Thursday decided to maintain its key interest rates, at a quarterly policymaking meeting, a move that was widely expected by the market.

It was the second consecutive quarter the central bank kept its monetary policy unchanged, despite the COVID-19 pandemic, as Taiwan efforts to contain the virus and weather the economic impact have proved largely successful to date, according to market analysts.

In accordance with the central bank's decision on Thursday, Taiwan's discount rate will remain at 1.125 percent, the lowest in the country's history. The rate on accommodations with collateral will stay unchanged at 1.50 percent, while the rate on accommodations without collateral will remain at 3.375 percent, according to the central bank.

In March, the central bank lowered its key interest rates by 0.25 percentage points, after leaving them unchanged for 14 consecutive quarters as the COVID-19 pandemic escalated, triggering concerns over the economy.

However, Taiwan remains awash in liquidity and its equity market has staged a strong rebound, making it unnecessary for the central bank to further ease monetary policy after the rate cut in March, analysts said.

Citing reduced worry over COVID-19 and improving exports and domestic demand, the central bank upgraded its forecast for Taiwan's 2020 gross domestic product (GDP) growth to 1.6 percent from its estimated 1.52 percent in June.

The central bank's latest forecast was more upbeat than that of the Directorate General of Budget, Accounting and Statistics (DGBAS).

In mid-August, the DGBAS lowered its forecast for Taiwan's 2020 GDP growth to 1.56 percent from its estimate of 1.67 percent in May.

The central bank said Taiwan has been benefiting from solid global demand for electronics components and information communication devices, while consumer confidence has been boosted by the government's stimulus measures.

In addition, semiconductor suppliers and information communication device makers have been keen to expand their capital expenditure, which also led to higher domestic investments, the central bank said.

It said it will continue to maintain its current loose monetary policy to facilitate economic development and is determined to stabilize consumer prices and the financial market.

According to the central bank, Taiwan's consumer price index (CPI) is forecast to fall 0.20 percent in 2020, while the core CPI, which excludes fruits, vegetables and energy, is estimated to rise 0.24 percent.

Taiwan's economic growth is expected to expand to 3.28 percent in 2021, the central bank forecast.

At a news conference after the policymaking meeting, central bank governor Yang Chin-long (楊金龍) said the local foreign exchange market remained relatively stable, although concerns over a stronger Taiwan dollar have been escalating amid continued large inflows of funds.

In recent sessions, the Taiwan dollar has repeatedly hit new highs against the U.S. dollar in two and a half years, making many export-oriented industries nervous about their global competitive edge.

In the period Jan. 1 to Sept. 16, the Taiwan dollar rose 2.70 percent against the greenback, a relatively smaller fluctuation than the South Korean currency's 9.76 percent, the Japanese yen's 8.24 percent, the euro's 7.63 percent and the Singapore dollar's 4.90 percent, according to Yang.

He said the recent strength of many non-U.S. dollar currencies largely reflected a weaker U.S. dollar and it was no surprise that the Taiwan dollar was moving in line with them.

On Thursday, the Taiwan dollar closed at the day's low of NT$29.310 against the U.S. dollar, down NT$0.002 from Wednesday.

(By Pan Tzu-yu and Frances Huang)

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