Taiwan Joins Global Wave of Rate Cuts in Bid to Combat Virus

(Bloomberg) --

Taiwan slashed its benchmark lending rate to a record low, joining the growing ranks of central banks around the world taking action to mitigate the economic shock of the coronavirus.

Policymakers in Taipei reduced the discount rate Thursday by 25 basis points to 1.125%, implementing lower borrowing costs than in the wake of the global financial crisis more than a decade ago. Economists had forecast a cut to 1.25%.

Governor Yang Chin-long said the impact of the coronavirus will be broader than the 2008 financial crisis.

“The main point of the rate cut isn’t to stimulate the economy but to allow companies to continue to operate and to lower the financial burden on families,” Yang said in a briefing after Thursday’s decision. Policymakers had to take “brave and fast” action to ease the economic impact of the outbreak, he said, adding the central bank could hold an ad-hoc board meeting before its next scheduled date in June.

Taiwan has imposed strict travel curbs to brake the virus’s spread. With economists warning many companies face an existential crisis, the government has promised to spend around NT$40 billion ($1.3 billion) to shore up industries worst hit by the outbreak. Still, economists see Taiwan’s economy shrinking 1.7% in the first quarter before rebounding in the second half of the year.

The central bank said in a statement Thursday it would make available NT$200 billion in funding for banks to assist small- and medium-sized enterprises facing financial difficulties. Policymakers have already moved to ensure ample liquidity in the markets by tweaking its sales of short-term money market notes and reducing its overnight guiding lending rate to its lowest level in four years.

Yang said the monetary authority still had room to cut rates further but would not implement negative rates.

Taiwan’s shares have been caught up in the turmoil engulfing markets around the world. The benchmark Taiex index has fallen 28% this year as foreign investors have offloaded a net $15.6 billion worth of Taiwan stocks, on-track for their biggest yearly sell-off since at least 2000, according to data compiled by Bloomberg.

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