Taiwan to cut rates further in 2016 as global outlook weakens

TAIPEI: Taiwan’s export-driven economy, a bellwether for the world’s technology sector, is likely to post its weakest annual growth since the global financial crisis this year, but the island’s central bank may not resume easing monetary policy until early 2016.

The central bank is tipped to keep the largely symbolic policy rate steady at 1.75 percent Thursday following its quarterly rate-setting meeting, based on a Reuters poll. Taiwan cut its benchmark discount rate in late September, its first rate change since mid-2011.

While only four out of 17 analysts polled expect a rate cut this week, economists said downside risks will prevail into next year on global uncertainties, including China’s recovery and unexpected terror threats that may hit consumer confidence.

The central bank’s rate cut announced in late September preceded government figures that ultimately showed Taiwan had fallen into recession in the third quarter. In the weeks before it cut rates, the central bank guided open market rates down.

It hasn’t done so this time. “We now think Taiwan will extend the rate cut cycle into 2016 and that the (central bank) will act more aggressively next year,” ANZ economists said in a recent note. They forecast no rate change for Thursday, but expect the discount rate to be lowered to 1.5 percent in two rate cut moves in the first half of 2016.

Weak exports data in November issued earlier this month dented hopes for fourth quarter gross domestic product, which the government is forecasting to grow a mere 0.49 percent on-year. Taiwan Semiconductor Manufacturing Co Ltd, the world’s largest contract chipmaker, last week reported double-digit on-year and on-month declines in sales for November.

The Taiwan bourse is down close to 2 percent so far this quarter, after slumping 12 percent in the third quarter, while foreign investors have been net sellers of stocks in November and December so far. The US Federal Reserve is widely expected to raise interest rates for the first time in nearly a decade on Wednesday US time, just hours before Taiwan makes its own decision.

Taiwan’s economy was once heavily driven by demand from the US, a major end-market for its signature technology gadgets, but even demand for Apple Inc.’s smartphones, which are packed with Taiwanese parts, swings increasingly on global developments.

“Today’s situation is different, as a slowing Chinese economy offsets the US’s recovery and weighs on Taiwan’s exports,” according to a recent note by DBS economists, who are forecasting a 12.5 basis point cut Thursday.

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