Taiwan central bank cuts rate to new low, slashes growth forecast
TAIPEI: Taiwan’s central bank cut interest rates for the first time in more than four years yesterday to a new low and reduced its growth forecast for the export-oriented economy amid growing fears that the coronavirus could trigger a global recession.
The central bank lowered its benchmark rate by 25 basis points to 1.125%, it said in a statement after a policy meeting. It was the first policy change since the second quarter of 2016 when it cut the discount rate to 1.375%.
The majority of the 17 economists in a Reuters poll had expected the central bank to cut the discount rate by 12.5 basis points to 1.25%.
It also said it would expand the scope of repurchase facility operations and provide banks with NT$200 billion (RM28.8 billion) of financing to support small and medium sized companies which have been hard hit by the virus’ impact.
The bank said in a statement that it had cut its full-year economic growth outlook to 1.92% from 2.57% forecast in December, noting the virus outbreak has “seriously impacted global economic supply and demand”.
The new forecast is still more optimistic than most private economists’ views. ING expects growth of 1% in the first quarter from a year earlier and 1.8% for 2020.
Central bank governor Yang Chin-long told a news conference the new forecast was based on the assumption the outbreak would last until June.
There is room for further rate cuts, but the bank won’t slash them to zero and there should not be a “negative interest rate situation”, he added.
“We are capable of doing Taiwan’s own quantitative easing. But the NT$200 billion scheme is more effective than QE,”Yang said.
“Central bank monetary policy will be more loose than now,“he added, not giving a time frame but saying they had to move “faster and be bolder” on rate decisions amid the outbreak.
However, analysts at Capital Economics said there was a limit to how much more rates could be cut, and that Taiwan may have to consider QE before too long.
“With the economy set to contract this year, further rate cuts and fiscal policy support will be needed. The outlook for the economy this year is very poor,“they wrote in a note. – Reuters