Taiwan’s central bank will likely hold its benchmark interest rate steady at its next policy meeting later this month, as inflation pressures eased slightly and exports continued to weigh on economic growth.
(Bloomberg) — Taiwan’s central bank will likely hold its benchmark interest rate steady at its next policy meeting later this month, as inflation pressures eased slightly and exports continued to weigh on economic growth.
That’s according to several economists following the release of key data earlier this week that showed overseas shipments plunging 17.1% in February from a year ago, the sixth consecutive month of declines. The consumer price index, meanwhile, increased 2.43% year-on-year, less than expected and below January’s jump of above 3%.
The January CPI figure and recent comments from central bank officials — including board member Chang Chien-yi — had fueled speculation about whether the monetary authority would increase its benchmark rate, currently at 1.75%. It last hiked the rate by 12.5 basis points in December.
Here’s what economists are saying about Taiwan’s interest rate outlook:
Bum Ki Son, emerging Asia economist at Barclays PLC
While the decision “remains a close call,” Son said the cooling inflation data would likely allow the central bank to hold this month. The bank lowered its full-year inflation forecast to 2% from 2.5%, adding that CPI is expected to ease below 2% in the second quarter.
Son added that while policy meetings in the first half of the year will be “relatively close calls” between a 12.5 basis-point hike and a hold, the third quarter is expected to contain a “hawkish hold” while the fourth quarter will see a cut.
Jeong Woo Park, economist at Nomura Holdings Inc.
Park expects the central bank to hold its policy rate at 1.75% this year “in view of growing disinflation pressures and rising risk of a technical recession.”
Tech exports remained weak, Park added. The February data showed shipments of semiconductors fell 17.3% from a year prior.
Inflation, meanwhile, is expected to return to the central bank’s “shadow 2% target” in the second quarter “despite near-term risks to the inflation outlook stemming from utility price hikes and the impact of inbound tourists,” Park added. Nomura forecasts inflation for 2023 at 2%.
Adrienne Lui, regional economist at Citigroup Inc.
The central bank will likely shift from “tightening” to “neutral” at its March meeting, Lui said, citing the weak trade data.
“Nascent signs of non-tech export demand from China could be bottoming out, but these are unlikely to be able to offset the prolonged tech exports drag,” she added.
Miao Ouyang, greater China economist at Bank of America Corp.
Bank of America maintains its view that the central bank “will likely stay on hold in March given the stiff headwinds on exports and growth,” Miao said — even though the headline CPI number could remain “well above” 2% and stay a “major concern” for the monetary authority.
China’s reopening will allow exports to “only benefit slightly” in the near term, “as China’s growth recovery will mainly be driven by a consumption rebound,” Miao said. “Looking ahead, we see stiff headwinds on Taiwan’s export outlook.”
Anita Hsu, economist from Masterlink Securities Investment Advisory Corp.
Hsu is an outlier: She said Taiwan will likely hike interest rates by 12.5 basis points in the first quarter given that inflation is “still high,” housing prices are elevated and other central banks are hawkish.
She sees CPI increasing above 2% this year, “driven by the increasing costs for services and restaurants.” Meanwhile, the worst is close to being over for Taiwan’s exports, Hsu added, despite the deep plunge in February.
–With assistance from Argin Chang, Chien-Hua Wan and Cindy Wang.
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