Taiwan's central bank freezes discount rate at 1.875%

No mention of rate hikes resumption.

As widely expected, Taiwan's central bank (CBC) froze the benchmark discount rate at 1.875% yesterday.

According to a research note from DBS, no message about a resumption of rate hikes was sent at this meeting.

During the policy statement, the central bank has commented that global economic outlook remains uncertain, domestic output gap is negative and inflation is moderate.

Governor Perng also downplayed the concerns about inflation during a parliamentary hearing earlier this week, attributing the recent rise in CPI figures to food supply issues and saying that overall inflation risks remain manageable.

Here's more from DBS:

All these comments suggest that the CBC is not in a hurry to hike rates. The recurring risks of external slowdown are non-negligible.

The latest manufacturing PMI numbers continued to soften in Eurozone and Japan, despite the modest rebound in China and steady readings in the US.

So far, Taiwan's export industry has mainly benefited from the US's recovery and the increase in iPhone-related electronics demand.

Whether export recovery can be sustained and how fast the pace will be still remain to be seen.

In the meantime, the divergence in global central banks' monetary policy also complicates the policymaking process for small economies like Taiwan.

Amid heightened expectations of Fed tightening, the Taiwan dollar has depreciated against the greenback since the beginning of Sep, with the USD/TWD rate rising above 303 this week.

On the other hand, the expectations about BOJ and ECB easing have resulted in sharp depreciation of the JPY and the EUR, sparking concerns about competitive currency devaluation.

In light of the increased uncertainties in the global economy and financial markets, the CBC would prefer to take a wait and see approach before making any policy adjustments.

No rate change is expected at the next policy meeting in Dec14. We expect the CBC to start hiking rates only from Mar15.