Taiwan’s central bank likely to keep key interest rate unchanged this year

Taiwan’s central bank, the Central Bank of the Republic of China, is likely to stand pat this year. According to a Commerzbank research report, the central bank is expected to maintain the discount rate at 1.375 percent. At the end of every quarter, the CBC holds its policy meeting. Between the third quarter of 2015 and second quarter of 2016 the Taiwanese central bank has cut rates four times by a combined 0.5 percent and has not shifted since. Given that Taiwan’s growth momentum remains modest, there is possibility of a rate cut rather than a hike, stated Commerzbank. However, there are a few reasons deterring additional rate cuts at the current stage.

Firstly, the interest rates at present are already at an all-time low. The key interest rate is slightly above the all-time low of 1.25 percent. This shows the rate at which financial institutions borrow from the central bank for short term purposes. However, this rate is greatly symbolic in nature as there is enough liquidity in the interbank for FIs to tap on, said Commerzbank.

Secondly, the central bank does not have a clear inflation target. Rather, it targets M2 growth at 2.5 percent to 6.5 percent. But the central bank is expected to be cautious of the upside risk to inflation because of higher oil prices and new labor rules.

“For 2017, we see inflation at 1.7 percent and above the 2011 – 2016 average of 1.1 percent”, added Commerzbank.