Interest rate cut discussed at central bank meeting in June

Taipei, A quarterly policymaking meeting held by the central bank in late June discussed the possibility of an interest rate cut as the domestic economy slows down, though it was decided to leave key interest rates unchanged for the time being, according to the minutes of the meeting released by the bank.

The minutes show central bank directors discussed the feasibility of a rate cut as the bank cut its forecast for Taiwan's gross domestic product (GDP) growth by 0.07 percentage points to 2.06 percent at the policymaking meeting held on June 20.

The minutes indicate the local economy faces increasing uncertainty caused by the U.SChina trade war, and since domestic inflationary pressure remains low, a rate cut could be an option for the central bank as it tries and boost the local economy.

In the first half of the year, the local consumer price index (CPI) rose only 0.56 percent from a year earlier and the core CPI, which excludes fruit, vegetables and energy, rose just 0.49 percent.

The discussion of a possible rate cut came as directors at the bank took into account a likely rate reduction by the U.S. Federal Reserve.

On Wednesday, the Fed lowered its key interest rates by 0.25 percentage points, as the market had widely anticipated, citing global developments and muted inflation as reasons for easing monetary conditions. It was the first time the Fed has lowered interest rates since 2008.

However, Fed Chairman Jerome Powell said the rate cut was just a midcycle adjustment, hinting more cuts are unlikely for the rest of this year.

One director at the local central bank meeting noted that major central banks around the world have introduced rate cuts amid escalating trade friction between the United States and China, but suggested Taiwan's central bank needed more time to monitor global financial conditions by leaving its key interest rates unchanged.

The central bank's decision to leave interest rates unchanged for the 12th consecutive quarter at its June meeting was in line with market expectations. That left the discount rate at 1.375 percent, rates on accommodations with collateral at 1.750 percent and accommodations without collateral at 3.625 percent.

One director said at the meeting that since domestic interest rates have been low, a rate cut is unlikely to boost the liquidity level substantially and such a move is not expected to benefit the local economy too much.

According to the minutes, another director concurred, saying the local banking system has been awash in liquidity so the government should look to fiscal policy to boost the economy.

Source: Focus Taiwan News Channel