Taiwan Central Bank Seen Holding Rates as Trade War Escalates

(Bloomberg) -- Taiwan’s central bank will keep its benchmark interest rate unchanged Thursday as a brewing trade war adds to risks facing the export-oriented economy, according to a Bloomberg survey.

A majority of 33 economists said Taiwan will hold the discount rate for banks at an eight-year low of 1.375 percent, while only three predicted an increase of 12.5 basis points to 1.5 percent, the survey showed.

Holding rates for now even while the U.S. Federal Reserve sees a faster pace of increases this year may help soften the knock-on effects that the tension between the U.S. and China could have on a supply-chain link like Taiwan. With investment sluggish and inflation muted, economists see little urgent need for the central bank to mirror its U.S. counterpart.

Central bank governor Yang Chin-long said during a meeting with lawmakers in April that there was little chance Taiwan would hike interest rates in the near future. Yang, who replaced former governor Perng Fai-nan in February, has said that monetary policy doesn’t necessarily need to “surprise” markets.

“This is Yang’s new style -- send a clear signal and prevent markets from falling into speculation,” said Rick Lo, chief economist at Fubon Financial Holding Co. in Taipei, adding that trade tensions and an unclear recovery momentum in major economies have clouded the global outlook, and the central bank may want to hold decisions until more economic data become available.

The central bank will for the first time broadcast the governor’s briefing live via their website and YouTube after Thursday’s meeting.

Clear Guidance

Taiwan Central Bank Seen Holding Rates as Trade War Escalates
Taiwan Central Bank Seen Holding Rates as Trade War Escalates

Here’s a summary of Yang’s public remarks since he took office in February:

  • March 1: An inflation increase of less than two percent this year would be ‘acceptable’
  • March 15: There’s no defense line for the Taiwan dollar
  • March 22: Monetary policy doesn’t necessarily need to ‘surprise’ to achieve effects
  • April 2: Central bank won’t devalue the currency to help exporters
  • April 25: Taiwan’s inflation is not severe. Little chance of a rate hike in June

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Miaojung Lin in Taipei at mlin179@bloomberg.net

©2018 Bloomberg L.P.

With assistance from Editorial Board