Taiwan Holds Interest Rate and Raises 2020 Growth Forecast

Taiwan kept borrowing costs unchanged and raised its growth forecast for the year in a rare display of optimism in a world grappling with the economic effects of the pandemic.

The central bank’s decision to hold the interest rate reflects confidence in an economy where the stock market is near a record high, exports are booming and the Covid-19 pandemic is being held at bay.

The economy is now expected to grow by 1.6% this year -- up from June’s 1.5% forecast -- driven by government spending and private investment as supply chains get relocated from China, central bank Governor Yang Chin-long told reporters Thursday. He attributed the bank’s increased optimism to Taiwan’s exports outperforming other Asian economies this year.

“Taiwan is highly reliant on foreign trade,” said Aidan Wang, vice president of economic and strategic research at Cathay Securities Investment Trust in Taipei. In addition, “domestic demand is recovering quickly. It’s a major factor for why the economy is growing this year.”

Policymakers kept the benchmark interest rate at 1.125%, as predicted by all of the 31 economists surveyed by Bloomberg. They’ve held the rate for a second consecutive quarter since cutting it in March, when Taiwan’s exports began to fall and the pandemic triggered a stock market decline.

Since then, exports have jumped to a record-high $31.2 billion in August, while the Taiwan Stock Exchange’s main index rebounded to its all-time high on Wednesday. The central bank is unlikely to change rates through the end of 2022, according to the median estimate in a Bloomberg survey of economists conducted over the past week.

The monetary authority will probably focus on the currency, which appreciated sharply against the dollar in the first half of the year, impacting both exporters as well as Taiwan’s massive life insurance sector, which manages $1 trillion in assets. The central bank has in the past said its efforts to “smooth” gains made by the local dollar against the greenback don’t amount to “intervention.”

While the U.S. Treasury hasn’t criticized the practice, Yang said Taiwan would be willing to discuss currency issues with Washington in any potential trade negotiations.

Yang denied that the bank had informally banned large U.S. dollar sales last week, saying that the flow of foreign capital in and out of Taiwan was unrestricted. In urging lenders to keep sales under $5 million, he said, the bank was merely offering “benevolent advice”.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.