Taiwan keeps key rate at 1 3/8%, citing mild inflation expectations

By Marisa Wong

Morgantown, W.Va., June 22 – The Central Bank of the Republic of China (Taiwan) decided to maintain the discount rate at 1 3/8% at its meeting on Thursday, according to a press release.

The bank’s board also decided to keep the rate on accommodations with collateral at 1¾% and the rate on accommodations without collateral at 3 5/8%.

The bank said it reached its decision given that current domestic inflationary pressures and inflation expectations are both mild. Meanwhile, domestic real interest rate relative to GDP growth is still at an appropriate level among major economies, the bank said.

However, the bank noted that uncertainties remain in the global economy, and growth momentum in the domestic economy may weaken slightly in the second half of the year.

Taking into account these factors and the expansionary fiscal policies implemented by the government, the board said it believes a policy rate hold and an accommodative monetary policy stance are conducive to price and financial stability.

The bank also reported on Thursday that a domestic economic upswing has bolstered labor market conditions, resulting in a further drop in the unemployment rate. With weaker momentum in exports and capital equipment imports during recent months, combined with limited growth in retail sales, Taiwan’s economy is expected to moderate somewhat in the second quarter. The economy is forecasted to advance at 1.76% in the second half of the year, slower than the first half’s 2.37%. For the year as a whole, the economic growth projection is 2.05%.

The board pointed out that since early 2017, New Taiwan dollar appreciation has helped ease the pressure on imported inflation, and domestic food prices have exhibited a downtrend. The CPI annual growth rate averaged 0.6% for the first five months of the year. Core inflation grew at an average pace of 0.97%, indicating mild inflationary pressures at present, the bank said.

Factors including the newly increased cigarette tax are expected to drive the CPI higher in the second half of 2017 than the first half, the board said. Nevertheless, considering subdued global inflation expectations, falling oil prices and soft domestic demand, the bank forecasts CPI and core CPI inflation for 2017 to rise 1.07% and 1.11% year on year, respectively, reflecting a stable inflation outlook, according to the release.

© 2015 Prospect News.
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