Taiwan set to hold rates steady as inflationary pressure eases, exports remain weak: Reuters poll

TAIPEI : Taiwan’s central bank is expected to leave its policy rate unchanged this week, according to most economists polled by Reuters, as inflationary pressures ease and the island’s export-driven economy faces weak external demand.

The central bank is likely to keep the benchmark discount rate at 1.875 per cent at its quarterly meeting on Thursday, according to 19 of 23 economists surveyed. At the last meeting, in March, the bank unexpectedly raised the rate by 12.5 basis points to its current level.

Four of the economists surveyed expected the central bank would lift the rate by 12.5 basis points to 2.0 per cent.

Looking ahead, the median forecast among those polled was for the central bank to keep the rate at 1.875 per cent for all of 2023 and half of 2024 before cutting it to 1.75 per cent in the third quarter of that year.

Inflation has been coming down, with Taiwan’s consumer price index 2.02 per cent higher in May than a year earlier, coming in below economist expectations and hitting its lowest level in nearly two years.

“CPI year-on-year growth for May was significantly lower than market expectations,” said analyst Chengyu Liu of First Capital Management. “This may result in a 50/50 chance the central bank will decide to pause interest rate hikes in June.”

But if the U.S. Federal Reserve, also meeting this week, raises rates, Taiwan will likely follow suit, Liu added.

Taiwan’s exports in May fell on an annual basis for a ninth consecutive month in a symptom of anaemic demand for the island’s tech products from China and global markets, with matters not expected to improve until the third quarter.

However the domestic economy is doing much better, with unemployment reaching a more than two-decade low in April.

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 entered recession in the first quarter.

The central bank will give its revised forecast for 2023 GDP growth on Thursday. In March, it forecast a 2.21 per cent expansion, down from a previous prediction of 2.53 per cent.

(Poll compiled by Devayani Sathyan, Madhumita Gokhale, and Carol Lee; Reporting by Faith Hung and Liang-sa Loh; Editing by Ben Blanchard & Simon Cameron-Moore)