Taiwan's central bank held its policy rate steady on Thursday, as growth prospects will improve next year but warned a rise in trade protectionism could hobble the export-reliant economy. Monetary conditions will stay loose to support the domestic economy, central bank governor Perng Fai-nan told a news conference, while inflation will be mild.
Taiwan's upbeat November export orders this week, on the heels of upward revisions to the government's 2016 economic growth estimate, have bolstered views the economy is stabilising, paving the way for the central bank to wind down its previous rate-cut cycle. The central bank kept its discount rate at 1.375 percent at its final policy meeting of the year, staying on hold for a second time.
Fourteen of 15 economists polled by Reuters had expected the central bank to stand pat on its policy rate. The central bank had cut rates four times prior to its September meeting to support the economy. Taiwan's government late last month revised higher economic growth for this year to 1.35 percent, and estimated a faster 1.87 percent expansion for 2017.
However, the central bank was cautious. "The uncertainties in the domestic and international economic and financial situation next year are high," it said. While Trump's possible expansionary policies to make the United States grow would benefit economic growth, any trade protectionism would have long-term negative effects for the world, Perng said.
"Trade protectionism policy means all countries lose," he said. "It would impact Taiwan greatly." Economists have said that the island's export engine could idle after the boost from year-end demand, with the US Federal Reserve's faster pace of rate hikes and Trump's protectionism rhetoric weighing on the outlook. "After today's decision...(the central bank) is expected to enter a rate hiking cycle in 2017. But they will cautiously assess the timing of the first interest rate hike," said ANZ senior economist Raymond Yeung in a note.