December 19, 2019 / 10:10 AM / 8 months ago

UPDATE 1-Taiwan keeps policy rate steady, raises growth forecast on brighter export outlook

* Policy rate kept at 1.375%, unchanged since June 2016

* Economic growth forecast revised up to 2.57% for 2020

* C.bank governor warns of possible sharper China slowdown

By Liang-sa Loh and Yimou Lee

TAIPEI, Dec 19 (Reuters) - Taiwan's central bank left its policy rate unchanged on Thursday, as expected, and raised its 2020 growth forecast amid an improving export outlook despite a protracted U.S.-China trade war.

The benchmark discount rate has remained at 1.375% since June 2016, and the decision to leave it there was as expected by all 15 economists in a Reuters poll.

The bank said in a statement that due to manufacturers boosting production in Taiwan and rising demand for new technologies, it expected export growth to "recover mildly" next year, adding that increased government expenditure and domestic investment would also boost growth next year.

However, the bank's governor Yang Chin-long warned of clouds on the horizon.

"The downturn risk for global economies still remains," Yang told reporters, citing geopolitical factors and the risk of a sharper economic slowdown in China.

Taiwan, whose manufacturers are a key part of the global supply chain for tech heavyweights such as Apple, has bucked a regional trend of growth downgrades partly thanks to factory relocations to Taiwan from China to avoid higher tariffs imposed during the U.S.-China trade war.

But the bank said it remained uncertain whether orders shifted to Taiwan this year due to the trade war would continue next year.

Yang said the rate decision was unanimous and it would continue with its "appropriate accommodative" monetary policy to support the economy.

The central bank slightly raised its full-year economic growth forecast to 2.6% from 2.4% estimated in September. It also revised up its 2020 forecast to 2.57% from a previous 2.34%. The bank said a recovery in the global chip industry as well as increased production from telecommunications manufacturers at home could boost growth next year.

Taiwan was named in a U.N. study as the largest beneficiary of "trade diversion" amid the U.S.-China trade war.

The trade-reliant island's exports showed their strongest growth in more than a year in November amid signs of a pick-up in global demand for electronics.

Some analysts said the growth was partly boosted by the stronger-than-expected sales of Apple's iPhone 11, which have powered revenues of many manufacturers in Taiwan including the world's top contract chip maker TSMC.

The central bank adjusted its 2019 core inflation forecast to 0.49%, down from 0.56% forecast in September. It said the outlook for inflation remained stable next year.

Analysts said they expected the central bank could stand pat on interest rates for a few more quarters. (Reporting By Yimou Lee and Liang-sa Loh; Additional reporting by Roger Tung; Writing by Ben Blanchard; Editing by Sam Holmes & Simon Cameron-Moore)

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