Central bank cuts interest rates by 0.25 percentage points (update)

Taipei, In concert with actions taken by central banks around the world to stimulate the economy, Taiwan's central bank decided to cut its key interest rates by 0.25 percentage points after concluding a quarterly policymaking meeting Thursday.

The move marked the first rate cut by the local central bank after leaving interest rates unchanged for 14 consecutive quarters, at a time when the global economy faces strong headwinds caused by the coronavirus disease COVID-19.

After the rate cut comes into force Friday, the central bank's discount rate will fall to 1.125 percent, the lowest in the country's history.

The previous lowest discount rate was 1.25 percent during the 2009 global financial crisis.

In addition, the rate on accommodations with collateral will drop to 1.50 percent and the rate on accommodations without collateral will decline to 3.375 percent, according to the central bank.

Market analysts said the central bank faced pressure to ease monetary policy, in particular after the U.S. Federal Reserve lowered its key interest rates 1 percentage point to zero on Sunday to combat the economic impact of COVID-19.

It was the second emergency rate cut by the Fed in just 15 days after an earlier reduction of 0.50 percentage points on March 3.

In addition to a cut in its key interest rates, the Fed also announced a new round of quantitative easing by injecting US$700 billion into the market.

Commenting on the rate cuts by central banks around the world, Wu Meng-tao (???), director of the sixth research division of the Taiwan Institute of Economic Research (TIER), said fears over the virus contagion has sent ripples through global equity markets and are expected to create systematic risks to the economy.

The rate reductions aim to avoid a credit crunch in the business sector, and prevent business closures, which could shore up public confidence in the economy, Wu said.

Meanwhile, taking into account uncertainty created by the spread of COVID-19, the central bank also cut its forecast for growth in Taiwan's gross domestic product (GDP) for 2020 from 2.57 percent, made in early March, to 1.92 percent.

The central bank was more downbeat about the local economy with its prediction that GDP growth for 2020 will be under 2 percent.

In a hearing held at the Legislative Yuan Wednesday, Chu Tzer-ming (???), head of the Directorate General of Budget, Accounting and Statistics (DGBAS), told lawmakers that the local economy is expected to grow by at least 2 percent in 2020 on the back of the government's NT$100 billion (US$3.28 billion) stimulus efforts, including a special NT$60 billion budget.

In February, the DGBAS said it expected Taiwan's GDP to grow 2.37 percent in 2020, a downgrade from a forecast of 2.72 percent made in November, citing the spread of the virus.

Source: Focus Taiwan News Channel