December 20, 2018 / 10:59 AM / in 4 months

UPDATE 1-Taiwan c.bank stands pat on rates as export orders slip

(Adds exports orders, comments)

* Policy rate left at 1.375 pct, unchanged since June 2016

* Economic growth forecast revised down to 2.33 pct for 2019

* Sino-U.S. trade conflict may affect growth momentum - c.bank

By Jess Macy Yu and Liang-Sa Loh

TAIPEI, Dec 20 (Reuters) - Taiwan’s central bank left its policy rate unchanged on Thursday, amid fears that global trade tensions could dent its trade-dependent economy as the island’s export orders fell more than expected due to slowing demand for tech gadgets.

The central bank held its benchmark discount rate at 1.375 percent, where it has stood since June 2016. Japan and Indonesia also kept policy rates unchanged on Thursday, after the U.S. raised interest rates.

“(There’s) the U.S.-Sino trade frictions, and the United States and China are Taiwan’s important trade partners. As major trade partners revised down growth forecasts, we keep the interest rate unchanged,” Central Bank Governor Yang Chin-long told a news conference.

Taiwan’s exports have been bolstered by global demand for electronics, especially from launches of new smartphones, showing few signs yet that the trade sector has been much-affected by growing trade protectionism and tensions.

The government had slightly lowered its growth forecasts for this year and next, after signs of slowing growth in the third quarter that it said was the result of sluggish domestic consumption due to the trade war.

Data on Thursday also showed the island’s export orders in November fell 2.1 percent from a year earlier, more than expected, and compared with 5.1 percent growth in October.

“The U.S.-Sino trade war is negative to the global economic growth, and domestic corporate investment and consumer confidence might turn cautious, affecting Taiwan’s economic growth momentum,” the central bank said in a statement on the outlook for 2019.

WEAKER OUTLOOK

The central bank cut its GDP forecast for this year to 2.68 percent from 2.73 percent in September, citing a slowing global economy, demand for tech products and trade war uncertainties.

It said it would maintain appropriate loose monetary policy to support the economy, as it revised down 2019 growth to 2.33 percent from 2.48 percent estimated previously.

The central bank said it expects 2018 core inflation to be 1.21 percent, down from 1.28 percent forecast in September.

One central bank board member had said earlier this year that it would consider adjusting interest rate policy if the consumer price index rose more than 2 percent.

Some analysts said the central bank was unlikely to shift from low interest rate settings in the coming months because higher rates could hurt its export competitiveness.

“The central bank has little reason to hike the rate next year,” said Standard Chartered Bank economist Tony Phoo, speaking before the central bank’s decision, citing the sluggish economic outlook for 2019.

Taiwan enjoys more monetary policy flexibility than some of the region’s emerging market peers, who are facing pressure to raise interest rates to counter capital outflows from a rise in U.S. rates.

Thanks to its large current account surplus and substantial foreign exchange reserves, Taiwan can better tackle capital outflows as investors seek high-yielding assets.

Sixteen of 17 economists in a Reuters poll had expected the central bank would leave the benchmark discount rate unchanged. (Writing by Yimou Lee; Editing by Jacqueline Wong)

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