Taiwan's policy discount rate to stand pat at 1.875%

It has remained steady for 3 quarters.

According to DBS, the 4Q monetary policy meeting will be held next week (December 19th). The policy discount rate is expected to be kept unchanged at 1.875%.

Here's more from DBS:

The central bank has held rates steady in 1Q-3Q this year, balancing between the objectives of maintaining price stability and supporting economic growth.

The CBC tightened liquidity and boosted interbank rates in 2Q, as inflation risks increased after the government’s energy price hikes. As a result of the worse-than-expected slowdown in economic growth, the CBC completely withdrew the tightening measures in 3Q.

The policy stance remained neutral since August. The outstanding central bank CDs/NCDs have stayed at a steady level of TWD 6.6-6.7trn in August-November. The
overnight interbank rate has stabilized at 0.39%.

We expect the CBC to stick to a neutral stance for now. In fact, growth-inflation dynamics have started to improve in recent months, reducing the pressures facing the central bank to tighten or loosen monetary policy.

The key growth indicators – export orders, exports and industrial production – have showed a modest improvement since September. CPI inflation on the other hand, fell rapidly to 1.6% YoY in November, down from the peak of 3.4% in August.

Meanwhile, note that the central bank will announce its money supply target for 2013 at the policy meeting next week. We expect the CBC to maintain the M2 target unchanged at 2.5%-6.5%.

The M2 growth in the first three quarter of this year averaged at 4.4% YoY, fairly close to the middle point of the policy band. The statistics agency currently forecasts that real GDP growth will rise to 3.2% in 2013 from 1.1% this year, while inflation will slow to 1.3% from 1.9%. The change in nominal GDP growth and thus money demand growth next year is expected to be marginal.