* Taiwan cuts rates to lowest level ever
* Taiwan lowers benchmark rate by 25 basis points to 1.125%
* C.bank also cuts 2020 GDP forecast to 1.92%
* C.bank to offer $6.6 billion for banks to support SMEs (Adds quotes, details, analyst comments, byline)
TAIPEI, March 19 (Reuters) - Taiwan’s central bank cut interest rates for the first time in more than four years on Thursday to a new low and reduced its growth forecast for the export-oriented economy amid growing fears that the coronavirus could trigger a global recession.
The central bank lowered its benchmark rate by 25 basis points to 1.125%, it said in a statement after a policy meeting.
It was the first policy change since the second quarter of 2016 when it cut the discount rate to 1.375%.
The majority of the 17 economists in a Reuters poll had expected the central bank to cut the discount rate by 12.5 basis points to 1.25%.
It also said it would expand the scope of repurchase facility operations and provide banks with T$200 billion ($6.58 billion) of financing to support small and medium sized companies which have been hard hit by the virus’ impact.
The bank said in a statement that it had cut its full-year economic growth outlook to 1.92% from 2.57% forecasted in December, noting the virus outbreak has “seriously impacted global economic supply and demand”.
The new forecast is still more optimistic than most private economists’ views. ING expects growth of 1% in the first quarter from a year earlier and 1.8% for 2020.
Central bank governor Yang Chin-long told a news conference the new forecast was based on the assumption the outbreak would last until June.
There is room for further rate cuts, but the bank won’t slash them to zero and there should not be a “negative interest rate situation”, he added.
“We are capable of doing Taiwan’s own quantitative easing. But the T$200 billion scheme is more effective than QE,” Yang said.
“Central bank monetary policy will be more loose than now,” he added, not giving a time frame but saying they had to move “faster and be bolder” on rate decisions amid the outbreak.
However, analysts at Capital Economics said there was a limit to how much more rates could be cut, and that Taiwan may have to consider QE before too long.
“With the economy set to contract this year, further rate cuts and fiscal policy support will be needed. The outlook for the economy this year is very poor,” they wrote in a note.
Some Taiwan manufacturers, which are a key part of the global supply chain for tech heavyweights such as Apple , have already seen February revenue hammered by the coronavirus fallout, which the World Health Organization has called a pandemic.
Taiwan’s top trading partner China saw an unprecedented plunge in economic activity as the virus spread, and while its outbreak appears to have peaked the disease is rapidly spreading worldwide, causing similar business upheavals in other economies and depressing global demand.
Most analysts polled by Reuters had expected the rate cut, saying a higher rate could boost the Taiwan dollar, hurting the island’s export competitiveness despite already ample liquidity in the island.
The island is rolling out a T$60 billion stimulus package to help soften the economic impact of the virus and President Tsai Ing-wen has said a further T$40 billion was available.
Tsai earlier on Thursday said Taiwan will help its hard-hit airline industry access T$50 billion in financing, and did not rule out further economic stimulus.
While Taiwan has only reported 108 cases of the virus, compared with more than 80,800 in neighbouring China, it is on a war-footing to prevent its further spread, and has advised its citizens to avoid all non-essential international travel.
The central bank also lowered its 2020 core inflation forecast to 0.55%, down from 0.7% forecast in December. ($1 = 30.4170 Taiwan dollars) (Reporting by Yimou Lee and Liang-sa Loh; Additional reporting by Ben Blanchard and Meg Shen; Editing by Kim Coghill, William Maclean)
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