TAIPEI (Reuters) – Taiwan’s central bank is expected to keep its policy rate unchanged this week, according to economists polled by Reuters, as the island’s economy and inflation slow and global banking woes unnerve markets.
The central bank is likely to keep the benchmark discount rate at 1.75% at its quarterly meeting on Thursday, according to the median forecast of 24 economists surveyed. At the last meeting, in December, the bank raised the rate by 12.5 basis points to its current level.
Eight of the economists surveyed expected the central bank would lift the rate by 12.5% basis points to 1.875%.
Looking ahead, the median forecast among those polled was for the central bank to keep the rate at 1.75% for all of 2023 and most of 2024 before cutting it to 1.625% in the fourth quarter of next year.
The central bank in December signalled an end to its hiking cycle given it expects the economy to decelerate and inflation to drop below 2% this year.
Taiwan’s consumer price index was 2.43% higher in February than a year earlier, coming in below economist expectations.
Cathay United Bank chief economist Lin Chi-chao said Taiwan’s rates were unlikely to rise because of expectations of a decline in inflation, the slowing domestic economy and a probable smaller U.S. Federal Reserve rate rise this week given the chaos that has erupted since Silicon Valley Bank failed.
“The central bank will comprehensively consider the international economic and financial situation and will stand still,” Lin said.
Taiwan deputy central bank governor Yen Tzung-ta said on Monday that Taiwan’s current inflation wave was not a short-term phenomenon, but noted in recent history the bank had rarely raised interest rates during export downturns.
Taiwan’s exports in February fell on an annual basis for a sixth consecutive month to the lowest level in two years because of the deteriorating global economy, with the outlook remaining dim for at least the first half of the year.
Taiwan is a major producer of semiconductors used in everything from cars to smartphones, but with global consumer demand hit by high inflation and impact of the war in Ukraine, Taiwan’s economy shrank 0.41% in the fourth quarter of last year.
Taiwan’s statistics agency last month lowered its gross domestic product (GDP) forecast for 2023 to 2.12%, down from the 2.75% prediction issued in November.
The central bank will give its revised forecast for 2023 GDP growth on Thursday. In December, it forecast a 2.53% expansion, down from a previous prediction of 2.9%.
(Poll compiled by Anant Chandak and Carol Lee; Reporting by Liang-sa Loh and Ben Blanchard; additional reporting by Faith Hung; Editing by Jamie Freed)
