Taiwan’s central bank kept its key rate on hold for the first time since 2021 at its board meeting Thursday, signaling a shift in policymakers’ priorities away from inflation to bolstering the flagging economy.
(Bloomberg) — Taiwan’s central bank kept its key rate on hold for the first time since 2021 at its board meeting Thursday, signaling a shift in policymakers’ priorities away from inflation to bolstering the flagging economy.
The monetary authority maintained its benchmark rate at 1.875%, its first pause since December 2021, in line with the forecasts of 20 out of 24 economists surveyed by Bloomberg.
Officials highlighted concerns about the economy as they downgraded their outlook for full-year growth to 1.72% from their previous forecast of 2.21% in Thursday’s statement, citing weak exports and investment.
“There is now more concern over growth risks even though core inflation has stayed sticky,” Ho Woei Chen, an economist at United Overseas Bank in Singapore said. “The Fed’s rate pause in June also gives them an opportunity to reassess the impact of previous tightening but the interest rate has likely peaked in Taiwan.”
Taiwan policymakers had hiked at their five most recent meetings, but the Federal Reserve’s decision to hold rates unchanged Wednesday and lower-than-expected inflation data for May eased pressure for another rise in borrowing costs.
While the central bank raised its 2023 inflation forecast to 2.24% on Thursday, it said prices are likely to ease throughout the second half of the year, strengthening the view that further rate increases this year are unlikely.
“With concerns about inflation likely to ease further, we expect the central bank to shift its focus towards supporting demand,” Shivaan Tandon of Capital Economics wrote in a note. “We expect the CBC to deliver a 12.5 basis point cut in September as it attempts to revive the economy.”
New Property Curbs
Taiwan’s economy has fallen into recession this year, shrinking 2.9% in the January-to-March period — the worst performance since the global financial crisis, according to data released late May, when the government cut its growth outlook.
Despite the weakening economy, stubbornly high property prices were another key concern in Thursday’s decision. The central bank took aim at buyers of second homes, instituting a 70% cap on mortgages for such properties in Taiwan’s major cities.
–With assistance from Chester Yung.
(Updates with chart and economist comments and additional details in the fourth, sixth, seventh and ninth paragraphs.)
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