Taiwan central bank maintains rates, warns growth may slow

Taipei

TAIWAN'S central bank left its policy rate unchanged on Thursday, as widely expected, with robust tech exports providing a strong anchor for the economy and inflation remaining subdued.

The move underscored policymakers' concerns that the island's trade-driven growth momentum may cool later this year, even though exports and orders have so far been resilient due to strong demand for components used in Apple Inc's upcoming iPhone 8 and other tech gadgets.

"In the second half of the year growth in the domestic economy could slow slightly," the central bank said in its statement, citing uncertainties in the global economy.

The central bank left the discount rate unchanged at 1.375 per cent for the fourth consecutive quarter. All 14 analysts Reuters surveyed had expected no change.

The central bank had cut the rate four times in a row from late 2015 to help lift the trade-reliant economy out of a mild recession.

Looking ahead, Reuters think the central bank is unlikely to be in any rush to adjust monetary policy.

Rate cuts are not needed to support the economy, which is enjoying a strong export-led recovery.

Growth reached 2.6 per cent year on year in the first quarter of the year, compared with a contraction of 0.8 per cent in the final quarter of 2015. More recent data suggests the economy is continuing to grow at a decent pace. Reuters' GDP growth forecast for this year is 3.0 per cent, which is above the consensus forecast of 2.0 per cent.

The Taiwan dollar has been buoyant in the past few months, in part because the authorities have avoided intervening out of fear over trade measures from US President Donald Trump's administration. The stronger currency is acting as a sort of tightening already, analysts say.

The central bank said on Thursday it would maintain order in the foreign exchange market if unexpected volatilities affect the economy.

"This is the mandate of the central bank," governor Perng Fai-nan told a news conference.

The Taiwan dollar has gained 6 per cent against the US dollar so far this year, making it the best performer in Asia.

Most economists do not expect rates to be raised until early next year since that would accelerate Taiwan dollar momentum, which has already hurt exporters' profitability.

The central bank "is unlikely to be in any rush to adjust monetary policy", according to Capital Economics.

"Rate cuts are not needed to support the economy, which is enjoying a strong export-led recovery. More recent data suggests the economy is continuing to grow at a decent pace," it added. REUTERS