Taiwan unlikely to follow South Korea, US in dropping interest rates

Central bank to keep interest rates frozen for 12th consecutive quarter

Governor of the Central Bank Yang Chin-long (楊金龍)

Governor of the Central Bank Yang Chin-long (楊金龍) (CNA photo)

TAIPEI (Taiwan News) -- Taiwan’s central bank is not expected to lower interest rates despite precedents set by other countries, and it expects improved growth in the second half of the year.

In light of their recent economic downturn and ongoing trade war with Japan, the South Korean central bank has decided to lower interest rates from 1.75 to 1.5 percent, reports the Liberty Times. Korea’s position as Taiwan’s main export rival has led observers to speculate as to whether Taiwan would follow suit after 12 quarters without any change in rates.

The LTN reports that the central bank of Taiwan is unlikely to adjust key interest rates and will maintain the status quo set in July 2016. The bank chose to keep the discount rate at 1.375 percent at a quarterly policy meeting in June, as it expected stable inflation in the near future.

At a press conference last month, the governor of the central bank, Yang Chin-long (楊金龍) was asked if Taiwan would follow the U.S. if it were to lower interest rates. Yang responded by saying that “Taiwan is in a different situation to the U.S. (and) has to consider different factors and won’t necessarily follow suit.”

Yang acknowledged that the central bank's economic growth projection of 2.06 percent for 2019 did not take into account the US$325 billion worth of tariffs placed on Chinese products by the U.S. The governor said that the projection may be revised downwards when possible, worrying observers that an interest rate drop would follow, according to the LTN report.

The central bank’s June estimates show slow growth for Taiwan during the first half of the year and an upswing in the second half. While the U.S.-China trade war negatively impacted the Taiwanese economy, which saw its growth rate shrink to 1.73 percent in the first half of 2019, increasing domestic demand, innovations in the semiconductor industry, and the return of Taiwanese manufacturers are expected to boost growth to 2.36 percent for the second half.