Taipei: Taiwan economists said Wednesday that the central bank should maintain its monetary policy in the second quarter, implying that the bank should not follow the United States Federal Reserve's emergency move the previous day to cut interest rates in an effort to mitigate the economic impact of the COVID 19 coronavirus outbreak.
Lo Wei (??), chief economist of Fubon Financial Holding Co, said Taiwan has been doing better than many other countries to contain the COVID 19 epidemic, therefore, it is unnecessary for the local central bank to ease its monetary policy anytime soon.
"It would be best if Taiwan's central bank left its key interest rates unchanged for the time being," Lo said, ahead of the bank's quarterly policymaking meeting on March 19.
In its last quarterly meeting on Dec. 16, 2019, the central bank maintained its monetary policy for the 14th consecutive quarter, leaving the discount rate at 1.375 percent, rates on accommodations with collateral at 1.750 percent, and rates on accommodations without collateral at 3.625 percent.
On Tuesday, the Fed made an emergency decision to cut its key interest rates by 0.50 percentage points, joining a growing list of central banks worldwide that have been easing their monetary policies to combat the economic risks posed by the COVID 19 outbreak.
"In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate," the Fed said, announcing its first emergency action since December 2008 during the global financial crisis.
Wang Jiann chyuan (???), vice president of Taiwan's Chung Hua Institution for Economic Research (CIER), said the recent heavy losses on the U.S. equity markets reflected panic selling among investors, who are deeply concerned about the effects of the epidemic on the economy.
Apparently, the Fed felt a sense of urgency to lower interest rates as a stimulus measure and to prevent weakening of the economic fundamentals amid the COVID 19 escalation, Wang said.
In Taiwan, however, the market remains awash in liquidity, so there is no need for its central bank to take similar action, according to Hua Nan Securities analyst Kevin Su (???).
"Many enterprises in Taiwan are sitting on large amounts of funds," Su said. "Taiwan's problem is that enterprises lack good investment opportunities."
In similar vein, Lo said lowering interest rates in Taiwan could prompt heavier investment in the local property market, which would lead to overheating.
In Taiwan, fiscal stimulus would be a more effective response to the economic effects of the coronavirus, he said.
"The government has already proposed a (NT$60 billion) stimulus package to help small and medium sized enterprises cope with the difficulties arising from the virus outbreak," Lo said. "So there is no immediate need for the central bank to cut interest rates."
As of Wednesday, there were more than 93,500 confirmed COVID 19 cases and over 3,200 deaths worldwide, with China accounting for the largest percentage. The U.S. had reported 128 cases and nine deaths, while Taiwan had confirmed 42 infections and one fatality.
Source: Focus Taiwan News Channel