Central bank set to hike interest rates: economists

The central bank will opt for easing inflationary pressure as its top priority amid a slowing domestic economy that has been reflected in a sharp slide in Taiwan's trade surplus for the first quarter of this year, economists said yesterday.

Citibank Taiwan vice president Cheng Cheng-mount (鄭貞茂) said that the Taipei-based Central Bank of China (CBC) will choose to stem rising domestic consumer-product prices by gradually raising key interest rates, even though the economy has shown signs of cooling.

Taiwan saw a sharp decline in the first-quarter trade surplus -- down by 85 percent at US$290 million compared to the same time last year.

Pointing out that this large decrease should be just a short-term phenomenon owing to increased imports of machinery, equipment and construction materials and rising the prices of oil, energy and raw materials, Cheng said Taiwan will not suffer a trade deficit over the long term thanks to its relatively high savings rate.

However, he claimed that inflationary pressure is under control in Taiwan and predicted that the CBC, following in the footsteps of the US Federal Reserve, will increase key interest rates by a one-eighth percentage point by the end of June.

Wu Chung-shu (吳中書), an economics researcher at Academia Sinica, called on the government not to overreact to the trade surplus shrinkage, as booming imports are an indication that domestic demand and investment have not subsided.