Taiwan’s central bank lowered its benchmark interest rate for a third successive policy session, in a bid to support the sluggish economic recovery and boost subdued inflation expectations.
Policymakers cut the benchmark discount rate by 12.5 basis points to 1.5 percent on Thursday, in line with economists’ expectations. Previous the rate was slashed by a similar amount in both December and September last year.
“To maintain financial stability while taking into consideration subdued inflation expectations and a widened negative output gap, the Board judged that reducing policy rates will help create a stable financial environment and in turn stimulate the economy,” the bank said in a statement.
The economy slid into a recession in the fourth quarter of 2015, and expanded 0.85 percent in last year, which was the weakest expansion since the financial crisis.
Exports, a key contributor to GDP growth, has remained weak due to subdued demand and unemployment keeps climbing.
“With underlying measures of inflation still very depressed, inflation expectations low, and the output gap widening, worries about inflation are unlikely to prevent the CBC from cutting again,” Capital Economics economist Gareth Leather said.
“Unless the economy starts to stage a recovery soon, the CBC may find itself having to adopt negative interest rates or some other unconventional policy tool, such as an exchange rate target.”
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