By Janet Ong and Yu-huay Sun
Jan. 7 (Bloomberg) -- Taiwan’s central bank cut its benchmark interest rate for a sixth time since late September after an unprecedented decline in exports threatened to push the economy into recession.
The Central Bank of the Republic of China (Taiwan) lowered the discount rate on 10-day loans to banks to 1.5 percent from 2 percent, according to a statement in Taipei today. The decision was made after an unscheduled central bank meeting today. Taiwan holds quarterly policy meetings.
Taiwanese exports fell by a record last month, a report today showed, hurting companies such as Nan Ya Plastics Corp., the world’s biggest processor of plastics for imitation leather and pipes. Indonesia also cut rates today, joining central banks across Asia in reducing borrowing costs as a global recession crimps demand for the region’s products.
The export figure was “far worse than the market expected,” said Craig Chan, a currency strategist at Nomura Singapore Ltd. in Singapore. “There will be more policy stimulus in the future. The central bank may cut rates to 1 percent or even below 1 percent. Today’s cut also highlights the central bank’s stance that it favors a weak local currency.”
The local dollar advanced 0.2 percent to close at NT$32.98 against its U.S. counterpart before the rate announcement, according to Taipei Forex Inc. The currency has fallen 0.4 percent this year.
“The central bank’s surprise rate cut means economic fundamentals are really bad,” said Ernest Lee, a bond trader at Mega Securities Co. in Taipei. “We’ll probably see more bad economic figures in the first and second quarters.”
Urging Lending
Taiwan’s central bank cited declining exports, rising job losses and a worsening economic outlook for its decision. The lower interest rate, which takes effect tomorrow, will help boost domestic demand, it said.
“Lowering rates will help reduce costs for individuals and companies, raise private consumption and willingness to invest, and boost domestic demand,” Governor Perng Fai-nan told reporters in Taipei today. The benchmark rate won’t be cut to zero, he reiterated today.
The central bank also urged local and foreign lenders in the island not to tighten credit to help support the economy, he said. Loans growth in Taiwan slowed to an estimated 3.14 percent at the end of December, from 4.22 percent in November, according to central bank data.
Inflation has slowed, though the island shows no signs of deflation, Perng said. Inflation may be about 0.37 percent this year, he estimated.
Overseas sales, equivalent to about three-quarters of Taiwan’s economy, tumbled 42 percent in December from a year earlier. That was more than the median estimate of a 30 percent decline in a Bloomberg News survey.
Growth Forecasts
Nan Ya Plastics, based in Taipei, reported a 57 percent drop in December sales, according to a filing to the Taiwan Stock Exchange today.
The Taiwanese economy probably slipped into a recession in the fourth quarter, the statistics bureau said in November. It will release fourth-quarter economic data in February.
Taiwan slashed its forecast for economic growth in 2009 to 2.12 percent from an earlier projection of 5.08 percent and said exports will fall 9.59 percent in U.S. dollar terms, the first decline in eight years.
The island’s economy probably expanded 1.87 percent last year, the central bank said today, citing a November forecast from the statistics bureau.
To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.netYu-huay Sun in Taipei ysun7@bloomberg.net
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