Taiwan Central Bank Leaves Key Interest Rates Unchanged — Update

By Sherry Qin

Taiwan's central bank held interest rates steady with a watchful eye on inflation, declining to join the U.S. Federal Reserve and a growing number of its Asian counterparts in starting to ease monetary policy.

The Central Bank of the Republic of China (Taiwan) kept its benchmark discount rate at 2.000% on Thursday, as expected in a poll of six analysts by The Wall Street Journal. It maintained its secured loan rate and unsecured loan rate at 2.375% and 4.250%, respectively.

The Taiwanese central bank attributed the decision to a gradual downward trend in domestic inflation and the global economic situation.

Thursday's move came after the CBC stood pat at its previous meeting in June after delivering a surprise hike of 12.5 basis points in March to guard against inflation risks.

Inflation in Taiwan has shown signs of stickiness in recent months. Higher prices of vegetables and fruits kept the consumer-price index above the central bank's threshold in August, and it has expressed concern about the housing market.

The CBC has recently stepped up efforts to cool the property market, which has seen a pickup in transactions and home-purchase loans since the second half of last year.

After raising the reserve-requirement ratio by 25 basis points in June, it met with representatives from 34 commercial banks in late August and told them to reduce property lending.

However, as core inflation has remained stable at 1.8% over the past three months, Goldman Sachs analysts don't expect the over 2% headline inflation prints to trigger another rate hike, they said in a note before the CBC decision.

The CBC stuck to its guardedly optimistic outlook for the economy, which has been notching robust growth as the chip-making powerhouse benefits from the global technology cycle upturn and the artificial-intelligence boom.

Taiwan's export value hit a record high in August "as business for AI and high-performance computing continued to be strong," the Finance Ministry said in September.

The CBC continues to expect inflation to cool gradually in the latter half of the year and "drop to less than 2% next year," the central bank said in a statement Thursday.

Thanks to the robust AI demand, the CBC raised the island economy's gross domestic product growth forecast for 2024 to 3.82% from 3.77%.

The bank said it will keep watching for risks to the Taiwanese economy's outlook, such as mainland China's economic slowdown and geopolitical risks.

The CBC's decision came after the Fed cut its benchmark interest rate by 50 basis points. Others in Asia have also kicked off their easing cycles, with the Philippine central bank breaking a nearly four-year streak and lowering its main policy rate in August and Indonesia pivoting earlier this week.

The start of the Fed's easing cycle could boost expectations that the CBC's next move will be a cut, but much will depend on how domestic factors play out, economists say.

"The CBC will be in little hurry to cut rates," Capital Economics said after the CBC decision. "We expect rates to be left on hold for the remainder of this year and next."

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

September 19, 2024 05:50 ET (09:50 GMT)

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