Taiwan trims rate by 12.5 bps to 1¾% with inflation expectations ‘mild’

By Marisa Wong

Morgantown, W.Va., Sept. 24 – The Central Bank of the Republic of China (Taiwan)’s board unanimously decided to cut the discount rate, the rate on accommodations with collateral and the rate on accommodations without collateral by 12.5 basis points each to 1¾%, 2 1/8% and 4%, respectively, according to a press release.

The change is effective from Sept. 25.

The board said the policy rate cut will help maintain price and financial stability and foster economic growth while the global economy is experiencing a slow recovery and many uncertainties remain.

The board highlighted that the domestic economy is moderating, the negative output gap is widening, inflation expectations are mild, and real interest rates are remaining relatively elevated.

According to the bank release, exports continued to record negative growth for several months on account of tepid external demand. The manufacturing purchasing managers’ index continued to contract. Meanwhile, the consumer confidence index has fallen for four consecutive months. As a result, private investment and private consumption weakened.

The Directorate-General of Budget, Accounting, and Statistics forecasts the domestic economy to expand by 1.01% for the second half of the year, down from the 2.14% of the first half. For the year as a whole, Taiwan is forecast to achieve a growth rate of 1.56%, markedly lower than that of potential output.

Labor market conditions showed steady improvement, and the number of employed persons continued to increase. The unemployment rate rose to 3.9% in August, reflecting seasonal factors; it averaged 3.73% for the first eight months. Average real monthly earnings for the industrial and services sectors grew by 3.53% for the first seven months of the year, the release said.

The bank reported that CPI annual growth rate has stayed in the negative territory for the past eight months, with an average rate of negative 0.62%. This was mainly due to the sizable declines in energy-related prices of oil, electricity and fuel. After excluding prices of fruit, vegetables and energy, the average core inflation rate increased mildly by 0.82% over the same period.

The Directorate-General of Budget, Accounting, and Statistics forecasts inflation to register negative 0.19% for this year as a whole; the CPI annual growth rate is projected to rebound to 0.74% next year, with a mild outlook for inflation.

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