Mon, Mar 21, 2005 - Page 10 News List

Central bank expected to raise rates

INFLATIONARY PRESSURE Financial authorities will likely follow the US central bank's lead and raise interest rates this week, responding to consumer price hikes

By Amber Chung  /  STAFF REPORTER

The nation's central bank is expected to lift the benchmark interest rate in the quarterly meeting this week, an economist said yesterday, citing looming inflationary pressure that may not be relieved by the strengthening New Taiwan dollar as expected.

"We expect the interest rate rise to happen for sure ... the only question is the scale of the increase," Citibank Taiwan vice president Cheng Cheng-mount (鄭貞茂) said in a phone interview yesterday, citing increasing inflationary pressure driven by rising raw material prices.

In light of considerable "hot money" entering Taiwan recently, the nation's central bank could raise the benchmark interest rates by just a mild 0.125 percentage points to avoid prompting more foreign capital inflow that may spur further appreciation of the NT dollar, Cheng said.

The US Federal Reserve is expected to nudge up interest rates by another quarter-percentage point in tomorrow's meeting to 5.75 percent after its series of six interest rate hikes that started in the middle of last year.

The market has predicted that Taiwan's authorities will follow suit and hike the nation's interest rates by a similar amount this week.

The central bank's second rate hike of 0.125 percentage points at the end of last year has boosted the bank's rediscount rate to 1.75 percent while pushing the secured accommodations rate and the unsecured loan rate to 2.125 percent and 4.0 percent, respectively.

The bank's governor, Peng Fai-nan (彭淮南), vowed last December to turn the currently negative real interest rates back to the "normal level" amid worries about possibly overshooting the consumer price index (CPI) this year.

The nation's CPI rose 1.94 percent year-on-year to 101.65 points last month, after climbing 0.50 percent in January, according to figures by the Cabinet-level Directorate General of Budget, Accounting and Statistics (DGBAS).

The index for this year is expected to increase by 1.67 percent, compared to last year's 1.62 percent, DGBAS predicted last month.

However, the nation's CPI is likely to edge up to 2 percent if the sky-high international crude oil price continues to rise to more than US$55 per barrel in the coming quarters, Cheng said.

The markups of wholesale gasoline price earlier this year by the nation's two major oil refiners, Chinese Petroleum Corp (中油) and Formosa Petrochemical Corp (台塑石化), which may spark hikes in fees for utilities such as water and electricity, could also exacerbate inflationary pressure, the economist said.

Cheng therefore expects that the central bank may raise the benchmark interest rates by a total of 0.5 percentage points over the entire year.

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