Taiwan central bank to hold fire on rates as tech boom bolsters economy

Taipei (Reuters): Taiwan’s central bank is expected to leave its policy rate unchanged for the fourth straight quarter this week, as demand for the island’s tech exports keeps its economic engines firing.

The government has raised Taiwan’s GDP outlook for 2017 to a three-year high on strong export momentum, while it expects inflationary pressures to remain mild.

The central bank is expected to leave the discount rate at 1.375% at its quarterly meeting on Thursday, all 14 analysts polled by Reuters predicted.

It had cut the rate four times in a row from late 2015 to help lift the trade-reliant economy out of a mild recession.

“Only the U.S. is raising rates now. It is mostly to normalize its monetary policy rather than tightening,” said analyst Lucas Lee of Mega Securities Investment Advisory.

Economists said it was unlikely the central bank would follow the U.S. Federal Reserve in raising interest rates this year as that would accelerate Taiwan dollar momentum.

The local currency has strengthened about 6.4% against the U.S. dollar since the start of this year, making it Asia’s second-best performing currency after the Korean won.

Most economists do not anticipate a rate hike until early next year, in part because a strong Taiwan dollar is already putting a dent in exporters’ profitability.

Last month, the government raised its full-year 2017 GDP forecast to 2.05%, up from the last estimate of 1.92%, thanks to solid demand for tech gadgets.

Taiwan’s exports in May expanded for the eighth straight month, as factories rushed to meet orders for new product launches, such as Apple Inc’s iPhone 8.

Momentum will likely cool in the second half of the year, with a slowdown in China and the impact of U.S. President Donald Trump’s protectionist trade policies being potential risks for Taiwan’s economy.