Taiwan central bank holds fire on rates, cuts growth outlook again

By Yimou Lee and Liang-sa Loh
TAIPEI (Reuters) - Taiwan's central bank unexpectedly left its key rate unchanged on Thursday, but further lowered its growth forecast for 2020 as the coronavirus pandemic threatens to strike another blow to the trade-dependent economy.
The decision to stay on hold has been accelerated by global central banks to ease monetary conditions as policymakers try to boost growth and financial stability due to dwindling investor sentiment.
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Taiwan's central bank left the base rate at 1.125%, where it has stood since March when it lowered the base rate to a historic low.
The average forecast by 16 economists in a Reuters survey was that the discount rate should be reduced to 1%.
"The rate cut was effective and consumption will gradually pick up. We'll wait and see for a while," central bank governor Yang Chin-long told reporters, referring to the possibility of further rate cuts.
The central bank lowered its full-year economic growth prospects from 1.92% in March to 1.52%. The outbreak of the virus could slow Taiwan's exports, but there are signs of an economic recovery.
"Although the world economy is still facing many uncertainties, domestic demand is likely to recover slightly thanks to domestic demand," said a statement.
The central bank expects growth to be stronger in the second half of the year than in the first half of the year, supported by government incentives and continued capital investment in the semiconductor sector. However, the additional uncertainty persisted due to the corona virus.
Yang said consumption is likely to increase in the third and fourth quarters thanks to a series of stimulus packages that are expected to reach $ 1 trillion ($ 33.8 billion).
He added that Taiwan's economic recovery is likely to be "Nike-shaped", indicating stronger growth in the second half than in the first.
Economists have referred to the Nike Swoosh logo or sloping L shape to describe a steady and gradual recovery.
However, Taiwan's GDP forecast is still much more optimistic than that of many banks, some of which, like Deutsche Bank, expect the economy to shrink this year.
While Taiwan has largely shaken off the pandemic with only five active coronavirus cases, the outbreak has affected labor market and consumption, and has pushed the government to implement its stimulus package to mitigate the effects.
The central bank also lowered its core inflation forecast for 2020 to 0.36%, adding that inflation should stabilize in the second half of the year and deflation is unlikely.
($ 1 = 29.5990 Taiwan dollar)
(Additional reporting by Emily Chan; writing by Ben Blanchard; editing by Jacqueline Wong)

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