Nation unlikely to hike interest rate in the coming year: analysts
February 23, 2014, 12:06 am TWN
TAIPEI--Taiwan's economy this year is expected to improve from last year, but it is still unlikely for the central bank to kick off an interest rate hike cycle, analysts said yesterday.
Despite rising global demand for high-tech gadgets, which is paving the path for a recovery of the local electronics sector, the backbone of Taiwan's exports, the sector's growth cannot be perceived as a rebound in the broader economy, they said.
Gordon Sun, director of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research, said that the local central bank still needs some time to observe the pace of the local economic recovery before making a decision on interest rates.
He and other analysts made the comments in response to a Wall Street Journal report on Thursday which said Taiwan may join the world's rate hike club with its central bank likely to be forced to tighten monetary policy to prevent the economy from overheating.
“With the recovery solidifying in the West and Taiwan still dominant in manufacturing semiconductors and other electronics, the island's economy is positioned for its fastest growth in three years,” the report said.
But Sun said the semiconductor industry, mentioned by the Wall Street Journal report, accounts for one-third of Taiwan's manufacturing sector's total output, while the sector makes up only 25 percent of the island's industrial output.
That means how well the electronics sector performs is not at all equal to how well the entire economy fares in Taiwan, he said.
He added that growth in other industrial sectors, such as petrochemical and machinery, remained slow, and these sectors need time before they can stage a rebound.
Liang Kuo-yuan, president of the Yuanta-Polaris Research Institute, was also cautious about Taiwan's economic growth prospects this year. He said the local electronics sector is faced with fiercer-than-ever competition from China, so even if global demand is on the rise, Taiwan is likely to see higher hurdles to grasp a larger share in the global market.
In the last policymaking meeting held in late December, Taiwan's central bank left its key interest rates unchanged. It was the 10th consecutive quarter for the bank to leave interest rates intact in order to boost the local economy.
Earlier this week, the Directorate General of Budget, Accounting and Statistics (DGBAS) upgraded its forecast on Taiwan's economic growth for 2014 to 2.82 percent from an earlier estimate of a 2.59 percent increase after the economy grew 2.11 percent in 2013.