The Taiwanese central bank is likely to loosen its monetary policy on 30 June following the government’s downward revision to the nation’s growth forecast. The Taiwanese government lowered the 2016 growth outlook by 0.41 percentage points to 1.06 percent. Moreover, the US Fed’s decision to keep its rates on hold also gives a chance for the Taiwanese central bank to extend their easing cycle for another quarter, said ANZ in a research report.
Furthermore, the CBC might benchmark their decision to the Bank of Korea’s recent unexpected rate cut. However, such a symbolic rate cut is expected to have a little effect on financial market variables. The TWD is expected to be majorly impacted by global factors, while domestic interest rates are likely to remain quite low as the central bank continues to keep domestic liquidity, according to ANZ.
But the easing cycle is likely to come to an end. After this rate cut, the central bank is expected to go back to its wait-and-watch stance. The CBC’s next policy move will depend on the timing of US Fed’s rate hike. Meanwhile, Chinese market stability is positive for the Taiwanese growth outlook. Taiwan’s export orders in May shrank less than it did in April. Recovery in the electronics supply chain supported the overall export orders. The Taiwanese economy is expected to rebound in the second quarter. Therefore, there is a slight risk of the CBC opting to keep rates unchanged during the June meeting, added ANZ.