December 21, 2016 / 10:09 AM / 7 months ago

Taiwan central bank seen keeping rates steady, but 2017 in focus

3 Min Read

A man is seen reflected next of the Taiwan's Central Bank logo in Taipei, Taiwan March 24, 2016.Tyrone Siu

TAIPEI (Reuters) - Taiwan's central bank will likely leave its key policy rate unchanged at its rate review on Thursday, but its outlook for 2017 will be key as the island's export engine begins to idle after the seasonal holiday boost and global risks emerge.

The largely symbolic discount rate - the rate at which the central bank lends to financial institutions mainly for short term purposes - is expected to stay unchanged at 1.375 percent, 14 of 15 economists polled by Reuters forecast.

Taiwan's upbeat November export orders, on the heels of upward revisions to the government's 2016 economic growth estimate, have helped bolster views the economy is stabilizing.

"Looking ahead to 2017, growth should improve but only modestly," DBS said in a research note last month. This means Taiwanese policymakers would be under less pressure to pursue short-term stimulus, instead their focus would be more on long-term structural issues, DBS said.

Central bank governor Perng Fai-nan said at the last quarterly meeting in September that domestic structural reform going forward would have to drive growth.

The central bank had indicated it may wind down on its rate-cut cycle started in September 2015 after cutting rates over four successive meetings, each by 0.125 percentage point, to reverse a technical recession.

The trade-dependent economy was buffeted by a slowdown in China and unclear prospects for the United States, both key trading partners.

Economists now expect Taiwan's monetary policy to remain accommodative due to mild inflation prospects, even as U.S. rates rise. Without cutting rates, the central bank could keep credit supply loose or adjust open market operation rates.

Taiwan's statistics agency last month forecast the consumer price index, a gauge of inflation, to rise just 0.75 percent for 2017, slower than the 1.31 percent estimated for this year.

At the time, it also shaved slightly its forecast for export growth next year but economists caution of more risks from Brexit, China's slowdown and increasing trade protectionism from the incoming administration of President-elect Donald Trump.

Capital flows potentially leaving Taiwan, and other emerging markets, as a result of faster-than-expected rate hikes by the U.S. Federal Reserve also add to uncertainties.

"The Fed hiking makes it hard for (Taiwan's) central bank to go against the grain," said ING economist Tim Condon in Singapore.

Editing by Jacqueline Wong

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