Taipei--Taiwan's central bank is not likely to raise its key interest rates until 2018 as the country's economy is still growing at only a mild pace, according to U.S-based Standard & Poor's Global Ratings.
But with the U.S. Federal Reserve expected to shrink its balance sheet later this year, and Taiwan's economic growth to pick up next year, Taiwan's central bank could raise interest rates by 0.25 percentage points in 2018, S&P said in a research report.
In late June, the central bank left its key interest rates unchanged for the fourth consecutive quarter, with the discount rate remaining at 1.375 percent.
The decision was expected by the market because economic growth was not strong enough for the central bank to justify tightening its monetary policy.
Expecting Taiwan's current export growth momentum to continue to the end of this year, S&P forecast that Taiwan's gross domestic product (GDP) will grow 2 percent in 2017, up from 1.52 percent seen in 2016.
S&P added that the recovery will continue in 2018, when Taiwan's GDP growth could reach 2.4 percent, leading the central bank to raise interest rates.
The ratings company said Taiwan's benchmark discount rate could rise to 1.625 percent by the end of next year.
S&P's 2017 GDP growth forecast was in line with the 2.05 percent growth projected by Taiwan's government.
Chang Shu-ping (???), an analyst with S&P's local partner Taiwan Ratings, said Taiwan's economy will get an additional boost in 2018 from a stabilizing Chinese economy and the continued recovery in the U.S. economy to surpass the growth seen in 2017.
The U.S. and China, the top two economies in the world, are among the largest buyers of Taiwan's goods and with rising demand from the two countries, Taiwan's exports, which account for about 60 percent of its GDP, are expected to grow higher.
"Overall, we anticipate a more steady recovery out of the difficult year in 2015 to continue, with growth hitting 2.4 percent next year," S&P said in the research report.
Despite optimism toward Taiwan's GDP growth, S&P warned that rising trade protectionism in major western economies could become a threat to the pace of the economic recovery in the future.
Source: Focus Taiwan News Channel