June 20, 2019 / 10:21 AM / a month ago

UPDATE 1-Taiwan c.bank stands pat, cuts GDP forecast as export orders drop

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

* Economic growth forecast revised down to 2.06% for 2019

* Government says trade war may impact tech orders

By Yimou Lee and Liang-Sa Loh

TAIPEI, June 20 (Reuters) - Taiwan’s central bank again cut its 2019 economic growth forecast on Thursday after export orders fell for a seventh straight month, but it kept rates unchanged near record lows.

Meeting after the Federal Reserve left U.S. rates unchanged hours earlier, Taiwan’s central bank held its benchmark discount rate at 1.375%, where it has stood since June 2016.

“Global economic growth and trade continue to slow,” said Central Bank Governor Yang Chin-long, adding that Taiwan’s economic growth would be stronger in the third and fourth quarters of this year.

Unlike other central banks that have recently left the door open to rate cuts as global growth is buffetted by the Sino-U.S. trade war, Taiwan’s central bank appears in no rush to ease as rates are already low, analysts say.

“With the government now stepping up fiscal support to boost activity, we don’t think the CBC (Taiwan’s central bank) will feel the need to provide additional monetary stimulus,” Capital Economics’ Gareth Leather said in a note, predicting the economy won’t slow much more. He expects interest rates to be left on hold until at least the end of the year.

Data on Thursday showed the island’s export orders in May fell for a seventh successive month to 5.8% from a year earlier, more than expected, and compared with a 3.7% decline in April.

The continued weakness in Taiwan’s orders, a leading indicator of demand for Asia’s exports and for hi-tech gadgets, suggests global electronic demand will remain soft for some time.

Taiwan’s ministry of economic affairs said in a statement trade frictions and a ban barring U.S. suppliers from selling to Chinese technology giant Huawei may “impact the order performance” of the island’s tech industry, although new demand such as 5G rollouts could help reduce the impact.

TRADE WAR UNCERTAINTY

The central bank cut its GDP forecast for this year to 2.06% from 2.13 percent in March, citing a slowing global economy and trade war uncertainties. The governor added that the latest growth forecast did not take into account the possible impact from the last round of U.S. tariffs on China.

It said the rate decision was unanimous and it would continue with its accommodative monetary policy.

The central bank said it expects 2019 core inflation to be 0.76%, down slightly from 0.78% forecast in March, adding that the outlook for inflation remained stable.

Capital Securities economist Kuoan Hsu said before the decision that Taiwan’s central bank would likely save its policy ammunition in case of a sharper downturn.

All fifteen economists in a Reuters poll had expected the central bank would leave the rate unchanged.

Additional reporting by Twinnie Siu and Taipei newsroom; Editing by Jacqueline Wong

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