Taiwan central bank seen likely to maintain current interest rates

06/14/2021 05:04 PM
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Taipei, June 14 (CNA) The central bank in Taiwan is expected to leave its key interest rates unchanged, when it holds its quarterly meeting Thursday, maintaining its loose liquidity policy amid economic uncertainty caused by an outbreak of domestic COVID-19 cases, an economist said Monday.

While Taiwan's economic outlook remains strong on solid global demand, private consumption has been adversely affected by the COVID-19 situation, Liang Kuo-yuan (粱國源), president of the Yuanta-Polaris Research Institute, said, citing the latest forecasts for Taiwan's 2021 economic growth.

Taiwan's economy appears "hot" in the area of exports, as the local manufacturing sector has remained largely unscathed by the COVID-19 outbreak, but domestic consumption has been "cold," he said.

Several export-oriented tech manufacturers have reported COVID-19 clusters among their employees, however, which could create uncertainty about Taiwan's tech gadget shipments, at a time when the global supply chain is already strained, Liang said.

Under such circumstances, the Taiwan central bank will not be motivated to adjust its monetary policy, when it meets Thursday, he said.

Liang suggested that the bank consider extending its financial relief package for small and medium-sized enterprises, which was rolled out last year amid the challenges brought by the COVID-19 pandemic, as they are seen as the backbone of the domestic economy.

At its last quarterly policymaking meeting in mid-March, the central bank left its key interest rates unchanged for the fourth straight quarter, keeping the discount rate at a historic low of 1.125 percent.

Meanwhile, the bank is likely to again raise its forecast Thursday for Taiwan's 2021 economic growth but not as high as the projection by the Directorate General of Budget, Accounting and Statistics (DGBAS), according to some market analysts.

The central bank upgraded its 2021 economic forecast in March, from 3.68 percent 4.53 percent, while the DGBAS last week raised its projection from 4.64 percent to 5.46 percent, on an anticipated 15.44 percent annual increase in exports of merchandise and services.

According to market analysts, the central bank is also expected to address the appreciation of the Taiwan dollar, which has wiped out part of the earnings from Taiwanese exports this year, amid continued inflows of foreign funds.

Since the beginning of the year, the U.S. dollar has dropped 3.08 percent against the Taiwan dollar, and it may have fallen further had the central bank not intervened.

Since the outbreak of domestic COVID-19 cases began mid-May, Taiwan has implemented a national Level 3 alert, under which all entertainment venues have been closed and on-site dining prohibited.

As a result, the DGBAS last week lowered its forecast for domestic private consumption by 0.99 percentage points to 2.75 percent, even though it is anticipating that the current COVID-19 outbreak in the country will contained by the end of the third quarter.

(By Pan Tzu-yu and Frances Huang)

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