Taiwan cuts rates as Central Bank acknowledges poor trade outlook

TAIPEI – Taiwan’s Central Bank has cuts its rediscount rate by 0.125% to 1.625% following the US rate increase. In doing so, the Bank was ahead of market expectations, but is maintaining its M2 target for 2016 at 2.5-6.5%.

ANZ Bank says the decision comes earlier than expected, clearly motivated by the rapid deterioration of Taiwan’s economic outlook. The Bank said exports are weak and inflation expectations mild, with external demand unlikely to improve in 2016. Central Bank Governor, Perng Fai-nan, believes the negative output gap will continue to widen next year.
ANZ says the rate move reinforces its belief that Taiwan’s central bank has entered a rate cutting cycle “even though Governor Perng warns that interest rate policy should not be too aggressive and the rate cut will have delayed effects”.
“We still believe poor economic outlook will continue to prompt the CBC to cut interest rates by 0.125% each in March and in June 2016. Market interest rates will continue to face downward pressure in the near term. www.live.anz.com (ATI).