Taiwan cuts benchmark rate as exports slump

epa04392324 Ships are loaded with goods at a container terminal of Keelung Harbour in Keelung, northern Taiwan, 09 September 2014. Taiwanese President Ma Ying-jeou urged the parliament to speed up the talks on Taiwan-China merchandise trade pact. Ma said that China is now Taiwan's top trading partner, but many of Taiwan's and South Korea's exports to China are similar. China and South Korea are holding talks on the free trade agreement (FTA). China and Taiwan will resume the merchandise trade talks in Taiwan 09-11 September.  EPA/DAVID CHANG

Taipei / Bloomberg

Taiwan cut its benchmark rate for a third consecutive quarter as an export slump showed no signs of recovering and has begun weighing on the labor market.
The central bank lowered the benchmark discount rate by another 12.5 basis points to 1.5 percent, it said in a statement Thursday in Taipei. Twenty-five of 26 economists surveyed by Bloomberg had forecast a cut, with 22 expecting the rate to reach 1.5 percent, three predicting 1.375 percent and one expecting no change.
The inflation outlook is steady and the domestic outlook is poised to improve, albeit at a slow pace, the central bank said in the statement. Overseas inflows have been strong amid low rates abroad, and policy makers will maintain foreign-exchange market order in the event of excessive volatility, according to the statement. Taiwan also will ease rules on mortgages.
Taiwan’s economy is headed for a third consecutive quarter of contraction as shipments shrank in the past 13 months amid a slowdown in China. The strongest stock inflows in Asia this year are buoying the local dollar, threatening to put the island’s exporters at a disadvantage to rivals in South Korea. The weaker trade picture also is weighing on the labor market, raising the risk that consumption will cool further as well.
“The effects of rate cuts are becoming less and less obvious, but it still needs to be done,” Woods Chen, an economist at Ta Chong Bank Ltd. in Taipei, said before the announcement.
“The goal is to further push down lending rates and weaken the Taiwan dollar, or at least limit its appreciation.”
Taiwan’s currency has gained 1 percent this year, more than that of its main export competitor South Korea. The weighted average interest rate on new loans made by the five leading banks dropped to a four-year low of 1.593 percent in February.
The unemployment rate rose to 3.94 percent in February and has climbed steadily from a record low of 3.73 percent a year earlier. Youth unemployment is “stubbornly high” and there’s “substantial slack” in the labor market that may not be evident in the overall jobless rate, John Zhu, an economist at HSBC Holdings Plc in Hong Kong, wrote in a note.

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