The People’s Bank of China (PBOC) made a surprise move to cut interest rates on Friday. It was the first time that the Chinese central bank has lowered interest rates since 2012. An economist in Taiwan said on Saturday that this move lowered the chance for Taiwan’s central bank to kick off a rate hike cycle any time soon.
The economist is Cheng Cheng-mount, president of the Taiwan Academy of Banking and Finance. He said Taiwan is a relatively small economy, which is sensitive to any policy adjustment made by its neighbor countries, including China.
After the US Federal Reserve announced in October an end to its quantitative easing program, many market analysts believe that the Fed will start to raise its key interest rates in mid-2015.
As a result, the market also anticipated that Taiwan’s central bank would launch its own interest rate hike cycle even before the Fed’s rate hikes. However, Cheng said that the unexpected interest rate cut this week by China’s central bank makes it unlikely for its Taiwanese counterpart to raise interest rates.