Taiwan’s central bank cuts rates for fourth time to revive economy

By J.R. Wu and Jeanny Kao

TAIPEI (Reuters) – Taiwan’s central bank trimmed interest rates for the fourth consecutive meeting on Thursday, saying fiscal stimulus and economic restructuring were also needed to revive the economy.

The widely expected rate cut comes a week after Britain voted to leave the European Union, setting off unprecedented market volatility and clouding global growth prospects that will likely be a drag on Taiwan’s technology sector.

The trade-reliant economy has been hit by falling exports and the added uncertainty of Brexit, and how the fallout trickles down to end demand for tech goods, could hurt export orders in the month’s ahead for Taiwanese manufacturers.

“The current domestic monetary policy is quite accommodative,” the central bank said. “Simultaneously paired with expansionary fiscal policy and commitment to promote structural reforms, these can drive continued growth for Taiwan’s economy.”

The central bank cut the discount rate by 0.125 percentage point to 1.375 percent, a level last seen in mid-2010.

Analysts in a Reuters poll had mostly forecast a cut of 0.125 percentage point.

Monetary policy will only have marginal impact on economic growth going forward, said Iris Pang, a senior economist with Natixis in Hong Kong, who also argued for more fiscal measures to support the economy.

The new government sworn into power in May is promoting policies it hopes will revitalize growth such as diversifying into non-tech and non-manufacturing businesses, and greater trade with Southeast Asia to lessen dependence on China.

Thursday’s cut extends an easing cycle begun in late September, and analysts say the central bank could lower the rate further this year to support the economy.

“Considering the increase in uncertainties from the recent international environment, the outlook for the domestic economy is increasingly conservative,” the central bank said.

Taiwan’s exports, which drive economic growth, are likely to contract for the second straight year in 2016 and annual economic growth could fall short of the 1.06 percent forecast by the government.

The concern is that trade disruptions from Brexit would deepen the problems tech manufacturers already face from China’s slowdown and weaker demand for Apple Inc’s iPhones.

“The central bank will continue to support the economy,” said Shuhui Chia, Asia country risk analyst with BMI Research in Singapore. She said it remains unclear if recent signs of improvements in monthly export and industrial output activities are “a sustained trend or a one off.”

(Editing by Jacqueline Wong)