March 22, 2018 / 11:04 AM / a year ago

UPDATE 1-Taiwan hold key rate, hikes 2018 growth forecast to 2.58 pct

(Adds quotes, details)

* Taiwan keeps policy rate unchanged at 1.375 pct

* Central bank expects inflation outlook to remain stable

* New governor: a trade war would have big impact on Taiwan

* Economic growth for 2018 forecast raised at 2.58 pct

TAIPEI, March 22 (Reuters) - Taiwan’s central bank left its policy rate unchanged on Thursday, as expected, and lifted its forecast for 2018 economic growth for the second time this year.

The central kept the benchmark discount rate at 1.375 percent, where it has been for seven quarters, as global demand for electronics continues to boost the island’s economy and inflation remains mild.

The central bank’s monetary policy will continue to be based on “appropriate loosening”, newly-appointed Central Bank Governor Yang Chin-long said after his first policy rate meeting.

Yang also said that any trade war would have a big impact on Taiwan due to its exposure to the global supply.

But in spite of worries about trade strife, Taiwan’s central bank hiked its economic growth forecast for this year to 2.58 percent, from the 2.42 percent projected last month - itself an increase from 2.29 percent.

Taiwan’s central bank was one of four in Asia-Pacific that kept their policy rates unchanged on Thursday, just hours after the Federal Reserve hiked U.S. rates, as expected. The others standing pat were New Zealand, the Philippines and Indonesia.

All 16 economists in a Reuters poll had predicted the Taiwan central bank would hold its key rate.

Capital Economics said the central bank “is unlikely to be in any rush to adjust monetary policy” as the economy is expanding at a “decent pace”, supported by strong exports and healthy consumer spending.”


But Angela Hsieh, regional economist at Barclays, said she expects hikes of 12.5 basis points in the third and fourth quarters this year.

“Recently the inflation concern has been coming back to the fore, she said. “Inflation expectations have certainly moved up.”

The central bank said inflation is expected to remain stable, with the consumer price index (CPI) seen rising 1.27 percent and core CPI up 1.26 percent in 2018.

The central bank had cut the rate four times in a row from late 2015 to help lift the trade-reliant economy out of a mild recession.

Yang, a former deputy governor of the central bank, was appointed in February, replacing Perng Fai-nan, who retired after serving the bank for 20 years.

Earlier this month, Yang said the central bank’s rate decisions will be made based on factors including the negative interest rates, foreign-exchange rates and the island’s output gap.

Also in March, the central bank told parliament it saw rising threats from trade protectionism and geopolitical risks, which could limit the economy’s momentum. (Reporting by Twinnie Siu, Jess Macy Yu and Liang-sa Loh; Additional reporting by Venus Wu in Hong Kong; Editing by Anne Marie Roantree and Richard Borsuk)

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