TAIPEI – Taiwan’s central bank is expected to leave its policy rate unchanged this week, according to most economists polled by Reuters, as inflationary pressures ease and the island’s export-driven economy faces weak external demand.
The central bank is likely to keep the benchmark discount rate at 1.875 percent at its quarterly meeting on Thursday, according to 19 of 23 economists surveyed. At the last meeting, in March, the bank unexpectedly raised the rate by 12.5 basis points to its current level.
Four of the economists surveyed expected the central bank would lift the rate by 12.5 basis points to 2.0 percent.
Looking ahead, the median forecast among those polled was for the central bank to keep the rate at 1.875 percent for all of 2023 and half of 2024 before cutting it to 1.75 percent in the third quarter of that year.
Inflation has been coming down, with Taiwan’s consumer price index 2.02 percent higher in May than a year earlier, coming in below economist expectations and hitting its lowest level in nearly two years.
“CPI year-on-year growth for May was significantly lower than market expectations,” said analyst Chengyu Liu of First Capital Management. “This may result in a 50/50 chance the central bank will decide to pause interest rate hikes in June.”
But if the US Federal Reserve, also meeting this week, raises rates, Taiwan will likely follow suit, Liu added.
Taiwan’s exports in May fell on an annual basis for a ninth consecutive month in a symptom of anaemic demand for the island’s tech products from China and global markets, with matters not expected to improve until the third quarter.
Exports last month were down 14.1 percent in value on the year, at $36.13 billion, the finance ministry said on Wednesday. That was slightly worse than an annual fall of 13.3 percent in April and in line with a Reuters poll forecast for a 14.4 percent contraction.
Taiwan’s export-reliant economy contracted more than expected in the first quarter, slipping into recession.
Total shipments of electronic components in May fell 9.9 percent from the year before to $15.05 billion, with semiconductor exports down 8.0 percent, the ministry said.
The outlook remains dim, the ministry said, adding that it expected June exports to shrink between 14 percent and 16.5 percent on year.
A pick-up in exports may not occur until September at the earliest or as late as November, it added.
Firms such as TSMC, the world’s largest contract chipmaker, are major suppliers to Apple Inc, Nvidia and other global tech giants, besides providing chips for auto companies and lower-end consumer goods.
United Microelectronics Corp, a smaller competitor of TSMC’s, reported on Tuesday that May sales dropped 23.1 percent on the year.
At $12.74 billion in May, Taiwan’s exports to China were down 19.4 percent, after the prior month’s drop of 22.0 percent on an annual basis.
Earlier on Wednesday, China reported that its May exports shrank much faster than expected as global demand faltered.
Taiwan’s finance ministry has said global inflation and monetary tightening in major economies would continue to crimp external demand, coupled with risks such as the war in Ukraine and China-US trade tension. -Reuters
