Taiwan holds rate at 1 7/8% with domestic economy steadily better

By Marisa Wong

Madison, Wis., March 26 – The Central Bank of the Republic of China (Taiwan) unanimously decided to keep the discount rate at 1 7/8% at its board meeting on Thursday, according to a press release.

The board also decided to maintain the rate on accommodations with collateral and the rate on accommodations without collateral at their current levels of 2¼% and 4 1/8%, respectively.

The board said it believes that a policy rate hold will help maintain price and financial stability and foster economic growth given uncertainties still surrounding the global economic recovery, the domestic economy improving steadily and inflation being low and stable with a temporary softening in inflation expectations.

The bank reported that Taiwan’s exports grew at a slightly slower pace. However, the plunge in energy prices helped bolster consumer confidence, boosting private consumption. Private investment is also likely to pick up. Taiwan’s economy is forecast to expand by 3.5% for the first quarter and by 3.78% for the entire year as growth is expected to advance further in the coming quarters, the release said.

Labor market conditions continued to improve on the back of a recovering economy, and employment increased steadily. The unemployment rate dropped to 3.69% in February, the lowest since February 2001. For the year of 2014, average monthly earnings of the industrial and service sectors grew by 3.58%, the biggest increase in four years, the bank said.

Dampened by significant declines in international commodity prices including oil, the CPI annual growth rate has trended downward since September and fell to negative 0.56% for the first two months of the year, according to the release.

Inflation is expected to reach negative 0.33% for the first quarter. However, inflation is expected to pick up quarter by quarter and to average 0.26% for the entire year. Major forecast agencies mostly project domestic inflation to be under 1% for 2015.

Core inflation (excluding prices of fruits, vegetables, and energy) for the first two months of the year advanced at an average pace of 1.21%, with a mild increase projected for the year as a whole.

The weakening in prices of oil-related goods and services, reflecting international oil price declines, has driven down inflation expectations. Nonetheless, as the downward trend of oil prices began in mid-year of 2014 and contributed to a lower base, the effect of an oil price slump on domestic prices is expected to gradually abate, the bank said.

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