TAIWAN’S central bank surprised markets by raising its policy rate on Thursday (Mar 21), wary of continued inflationary pressures and ahead of an expected rise in electricity prices next month, a tightening at odds with the broader global trend.
Major central banks are signalling that interest rates will likely move lower in coming months as inflation weakens, leaving Taiwan as somewhat of an outlier along with the Bank of Japan, which also raised rates this week.
Taiwan’s central bank hiked the benchmark discount rate to 2 per cent from 1.875 per cent, where it has stood since last March, citing concern about the effect of April’s power price hike and as inflation persists.
In a Reuters poll, 25 out of 26 economists had predicted the central bank would keep the rate unchanged. Still, the new rate remains at a much lower level relative to major economies.
Central bank governor Yang Chin-long said the decision was not unanimous, with one board member voting to stand pat.
“The tone of our monetary policy is still tightening, but it won’t be yet tighter,” he told reporters, describing the hike as mild. “Our hiking is not the same as other countries. We are doing it gradually, and on a small scale.”
Yang added while the central bank would not give guidance like the US Federal Reserve, there will probably not be further hikes for Taiwan.
The central bank increased its forecast for the consumer price index (CPI) this year to 2.16 per cent from a previous prediction of 1.89 per cent.
The island’s CPI rose 3.08 per cent in February, a 19-month high, as food prices climbed during the Lunar New Year holiday.
Taiwan’s government will announce on Friday by how much electricity prices will go up.
First Capital Management analyst Chengyu Liu described the rate rise as a preventative measure to suppress inflation expectations ahead of the electricity price increase.
“I don’t expect at the moment that the central bank will continue to raise rates,” Liu added.
Taiwan’s unexpected rate rise follows the US Federal Reserve’s decision on Wednesday to leave rates on hold though it indicated it would stick with plans to cut borrowing costs this year.
Taiwan’s central bank also raised its 2024 estimate for economic growth to 3.22 per cent from a forecast of 3.12 per cent in December, as global demand for made-in-Taiwan tech products as well as domestic spending rebound.
The economy grew at its slowest pace in 14 years in 2023. REUTERS
